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ATO sets high investment strategy standard

SMSF investment strategy

The ATO’s expectations as to what should be contained in an SMSF investment strategy exceed the law, according to a specialist auditor.

A leading sector auditor has warned advisers that the ATO’s expectations as to what an SMSF investment strategy should include exceed the legal obligations imposed on trustees as defined by the Superannuation Industry (Supervision) (SIS) Act.

Speaking at the recent SMSF Association 2020 National Conference held on the Gold Coast, Super Sphere director Belinda Aisbett told delegates: “The ATO has mentioned that they think it’s important for trustees to be documenting [in the investment strategy] what the risks actually are.

“I personally don’t believe SIS requires you to document what the risks are. So if you’ve only got a property in your super fund, you’re not expected in your [investment] strategy to document property risks.”

Aisbett noted only an acknowledgement that the investment strategy may expose the SMSF to some risks is all that is required by law.

She recognised the recent scrutiny of investment strategies means SMSF specialist auditors now have to examine this document in more detail than they potentially have in the past.

This new onus on auditors to assess the investment strategy in more depth has uncovered another associated issue, she said.

“One of the really big issues we’re noticing, now that we’re spending more time on these documents, is, irritatingly so, a lot of them call for a return be achieved,” she noted.

“So when you have investment strategies that say ‘as trustees this is our objective – we want 3 per cent above CPI (consumer price index) on a rolling five-year basis with only one year of negative returns’, we need to look at that now as auditors.

“Because if we don’t, how have we shown they’ve given effect to the strategy, especially when we can see, for the last five years, they’ve had three years of losses or they haven’t hit the 3 per cent above CPI?”

She said these situations are giving auditors the opportunity to remind clients they need to give their investment strategy greater attention.

A reassessment of the treatment and significance of the SMSF investment strategy has been witnessed since the ATO sent 17,700 letter to trustees regarding this area of compliance in the second half of 2019.

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