SMSF trustees with fund deeds that have minimal details around investments should not rely on the terms of the deed when making investment decisions, but rather the law as it currently stands, according to a technical expert.
BT Technical Services technical consultant Tim Howard said the benchmark for what was an acceptable investment was not based on the investment strategy itself, but the parameters of the fund’s trust deed, as well as the sole purpose test and the investment not being prohibited under superannuation law.
“When we are looking at investment restrictions, the fund’s trust deed needs to allow a particular investment,” Howard said during a recent technical briefing.
“Most modern deeds will refer to what is allowed under superannuation law and often don’t have any more restrictions than that.
“Some older deeds that have not been updated may create issues with some modern investments, such as limited recourse borrowing arrangements, but we can make sure the deed is updated so it does not prohibit or restrict a fund from making a certain type of investment.
“Keep in mind the principle here is that the fund’s trust deed can be more restrictive than superannuation law, but it cannot be more generous than what is allowed under that law.”
He said this meant any investment benchmark that did not consider the deed and superannuation law was unlikely to be acceptable under the current obligations on SMSF trustees.
“A trustee’s creativity might come into the picture when exploring the investment universe, but the SMSF trust deed might restrict the investment and the sole purpose test certainly might restrict the investment,” he said.
“The investment should also not be something that is otherwise prohibited, such as the SMSF acquiring an asset from the member, and so we need to consider all of the factors when it comes to determining the limits of what an SMSF can invest in.
“And with any investment asset that we do hold, there is a need to be aware of the non-arm’s-length income and expenditure provisions, which is a hot topic at the moment and which the ATO has finalised, but the government is looking for a bit more guidance from industry around how and where that would apply.”
