ATO, Investments

In-house asset obligations must be maintained

in-house asset relief

The ATO’s coronavirus relief provisions do not extend to in-house asset ratios or investment strategies and trustees need to maintain their obligations.

The ATO has reminded SMSFs to monitor the level of in-house assets within a fund and reduce them if they exceed the mandated 5 per cent as a result of the current downturn in share markets, but it will take a considered approach in enforcing this requirement.

The regulator said SMSFs should also ensure the fund’s investment strategy is reviewed and updated to take into account any significant changes that may have occurred to investment positions as a result of the downturn.

It provided the information on its website under a section titled Dealing with Disasters, which includes a sub-section related to the coronavirus and the processes the ATO would adopt.

Addressing the issue of in-house assets, it noted the current share market downturn may result in an SMSF’s in-house assets increasing to more than 5 per cent of the fund’s total assets, breaching the in-house asset rules.

If this was the case at the end of a financial year, it stated the SMSF trustees had to prepare a written plan on how the fund would reduce the market ratio of in-house assets to the 5 per cent threshold or lower before the end of the next following year of income.

“If an SMSF exceeds the 5 per cent in-house asset threshold as at 30 June 2020, a plan must be prepared and implemented on or before 30 June 2021,” it stated, adding it would consider the share market when looking at enforcing this policy.

“However, we will not undertake compliance activity if the rectification plan was unable to be executed because the market has not recovered or it was unnecessary to implement the plan as the market had recovered.”

It also returned to the issue of investment strategies and the necessity for trustees to prepare and implement an investment strategy that they give effect to and review regularly.

Repeating its messaging from earlier this year, SMSF trustees were reminded the strategy should be reviewed at least annually and that the review, as well as any subsequent decisions from it, should be documented.

“Certain significant events, such as a market correction, should also prompt a review of your strategy and may require updating your investment strategy,” it said.

“Where the assets of an SMSF or the level of investment in those assets fall outside of the scope of your investment strategy, you should take action to address that situation, which could involve adjustments to investments or updating your investment strategy.

“All investment decisions must be made in accordance with the investment strategy of the fund. If in doubt, trustees should seek investment advice.”

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