ATO, Investments

Detailed investment strategy guidance coming

ATO investment strategy guidance

New guidance on SMSF investment strategies will soon be released, with an expert tipping the ATO will roll out detailed assistance for trustees.

The ATO will soon release further guidance for SMSF trustees around what should be included in an investment strategy, according to an SMSF specialist.

Smarter SMSF chief executive Aaron Dunn said the guidance would be released in the near future and is based on the outcomes of the ATO’s letter-writing campaign to 17,700 SMSFs that held single assets or had a high concentration to a single asset class.

Dunn said public comments from the ATO since the campaign indicated the regulator had taken a wider view and the guidance would reflect that.

“Further guidance is about to land, following ongoing discussion with the industry, and I believe this will be the first part of a multi-step process with more detailed guidance,” he said.

“I pushed for this quite heavily in my response to the ATO, but the initial guidance will help trustees understand what should be included in a fund’s investment strategy, what the investment restrictions are and what ‘giving effect’ to a strategy means in the eyes of the regulator.”

He said the guidance would also cover the frequency of review for an investment strategy, the auditor’s role in relation to the strategy and what non-compliance and ATO action may occur via an auditor contravention report for breaches of Superannuation Industry (Supervision) (SIS) regulation 4.09.

“We have continued to see commentary from the ATO in respect to investment strategy activity and a broad statement that can be made is the impact of the letters was a positive outcome on heightening the awareness of what an investment strategy should do,” he said.

“When we have seen the ATO raise this issue, one of the pointed comments they made when talking about this is that 180,000 funds are in this situation of holding single assets or asset classes.

“The ATO is not saying trustees can’t invest in these, but guidance from the Australian Prudential Regulation Authority also addresses the fact that where a fund has heavy asset allocation there is a need to consider its strategy and how to divest over time, and the [tax] commissioner’s commentary has broadened, raising long-standing approaches to asset allocation.”

The 0 to 100 per cent investment range used by some SMSFs did not help the fund members to understand how they are moving towards their retirement objectives, he noted.

“How do these strategies help the trustees to consider the whole circumstances of the fund and to benchmark and apply ranges that are relevant to them?” he said.

“The ATO has made commentary and will provide more information on this shortly to say this model was not satisfactory in meeting SIS regulation 4.09. I want to put people on notice that if you have clients with this model, from an auditor perspective, they will be asking questions, because the ATO has made it clear this is not an acceptable strategy, and while there may be some circumstances where it is suitable, the onus will be on trustees to demonstrate they have moved within the ranges to meet the retirement objectives.”

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