How does your superannuation diversification strategy stack up?

The Australian Taxation Office recently announced that they would be writing to trustees of self managed superannuation funds that they believe could have an investment strategy that does not meet the diversification requirements under regulation 4.09 of the Superannuation Industry (Supervision) Act (SISA).

It is expected that the trustees of approximately 18,000 SMSFs will receive this letter.

SISA requires that the trustees of an SMSF formulate, review regularly and give effect to an investment strategy that has regard to the whole of the circumstances of the entity, including:

  • Diversification of their fund investments
  • The risks associated with inadequate diversification
  • The making, holding and realising and the likely return from their investments and expected cash flow requirements
  • The liquidity of their investments
  • Whether to hold insurance cover for one or more members

The ATO believe that SMSFs may be failing to meet these requirements if they hold 90% or more of their assets in one class or as a single asset. Their concern is that members are subject to unnecessary risk if the fund’s investments fail.

Expect auditors to be closely reviewing investment strategies when performing audits.  In reviewing an investment strategy they will be looking not just at whether the investment strategy does meet the requirements of SISR 4.09, but also why the trustees have decided to invest in a particular asset class/classes.  They will also be looking for justification around the decision on insurance cover for members.  Where they form the view that an investment strategy does not comply with the requirements of SISR 4.09 it may result in management letter points or qualified audit reports.  If this is a material or recurring breach, then an Auditor Contravention Report (ACR) may be lodged.

If you would like to discuss your fund’s investment strategy please contact us on:

Brisbane – Clive Todd

Melbourne – Brad Purvis

Sydney – Dean Newman

+61 7 3218 3900

+61 3 9252 0800

+61 2 9922 1166

Published: 6 September 2019

 

Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.

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