ATO letters regarding SMSF investment diversification requirements

If you are a trustee of a self-managed superannuation fund (SMSF), you may have recently received correspondence from the Australian Taxation Office (ATO) asking, “Is your SMSF investment strategy meeting diversification requirements?”

Click here to view a sample of this letter.

These letters are being sent to trustees of SMSFs that may hold 90% or more of its funds in one asset or a single asset class (eg all in property or all in cash), indicating that the SMSF is not meeting the diversification requirements as outlined in the operating standard of the Superannuation Industry (Superannuation) Regulations 1994 (SISR) and therefore could be liable for penalties of $4,200.

However, it’s important to note that the ATO does not have the legislative power to force SMSFs to sell or move assets – SMSF trustees can invest how they wish. The requirement is that trustees give consideration to diversification and clearly document the reasons behind their investment decisions with regard to the composition of the entity’s investments as a whole, including the extent to which they are adequately diversified.

The operating standard legislative reference given by the ATO in relation to this communication is SISR 4.09 (Operating standard – investment strategy).

It is a timely reminder that it is good practice for trustees and their advisors to regularly review their SMSF’s investment strategy to avoid exposing the fund’s assets to unnecessary risks if a significant investment fails.

If you have any questions regarding these letters or general questions regarding the management of your fund, please do not hesitate to contact Hahn On – Superannuation Partner on 03 9810 0700 or h.on@banksgroup.com.au.

Talk to us…

Banks Group is an association of independent firms that operate in Melbourne, Sydney and Auckland under the same trading name. Neither the Melbourne Banks Group, Sydney Banks Group or Auckland Banks Group are partners or agents of each other and shall not be liable for any act or omission of each other. Liability limited by a scheme approved under Professional Standards Legislation

MAG_WEB

All services are provided as a Corporate Authorised Representative of Magnitude Group Pty Ltd (ABN 54 086 266202, AFSL 221557).

Count_WEB

Financial Planning Services provided as an authorised representative of Count Financial Limited ABN 19 001 974 625 Australian Financial Services Licence Holder Number 227232 a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. Count is a Professional Partner of the Financial Planning Association of Australia Limited. Count advisers are authorised representatives of Count. www.count.com.au

"Please note that any taxation and accounting services are not endorsed nor the responsibility of Count Financial Limited".