ATO, Investments, Superannuation

Trustee letters effect unknown

SMSF investment letters

The ATO has revealed the SMSF investment strategy is being treated with more importance, although the shift cannot be attributed to the compliance letters the regulator sent out on the subject last year.

The impact of the letters sent out by the regulator to SMSF trustees asking for evidence of an effective investment strategy being in place is still unknown, but other developments indicate this requirement is now being taken more seriously, a senior ATO official has said.

“Because [the letters] went out in August last year and because the bulk of the 2020/21 returns aren’t going to come in until next year [means] we probably won’t see the upshot of any additional ACRs (auditor contravention reports) lodged as a result of those letters until then,” ATO risk and strategy director Kellie Grant said during a question and answer session at the recent 2020 Self-managed Independent Superannuation Funds Association SMSF Virtual Forum.

However, Grant pointed out there are signs the responsibility of trustees to have a documented investment strategy for their SMSF in place is already being given more importance, especially from auditors.

She attributed this behavioural shift to recent legal decisions on the subject.

“As far as increased ACR breaches as a result of those letters, not so much yet. We have over the last few years though seen a real increase in [Superannuation Industry (Supervision) Regulation] 4.09 breaches reported in ACRs,” Grant noted.

“In 2017, there were 233 ACR breaches [of this nature and] in 2019 there were 479. We think for now the ones we’re seeing are probably more as a result of the Baumgartner and McGoldrick-type [legal] decisions where auditors are obviously now ensuring trustees are complying with their [investment strategy] obligations given the potential liability claims that can result.

“Overall though it is really positive to see that we think the industry has made a bit of a shift on this issue and really now treating it with the importance it should have always received.”

According to Grant, the critical nature of the investment strategy is likely to gain ever-increasing recognition given the effect COVID-19 has had on the economy and how this has challenged many existing portfolio allocations.

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