Investment strategies for SMSFs is a hot topic at the moment.
According to Regulation 4.09 of Superannuation Industry (Supervision) Act 1993, an auditor must review the fund’s investment strategy for evidence that the trustee’s have formulated, and invested in accordance with, an investment strategy.
This does not mean that the auditor will be making an assessment of the investment choice the trustees have made. Remember it is ‘self-managed’ therefore trustees can invest in whatever they want, provided it is allowed by the SIS Act and trust deed.
The auditor will look at the investment strategy and check that the trustees have reviewed and documented the following:
Trustees have outlined and acknowledged the risk associated with the investment choices they have made, likely return and how this investment fits into their overall strategy.
Trustees have outlined and acknowledged if they have diversified the fund’s investment or not and if not diversified why they have chosen not to diversify.
The trustees have estimated the return from the investment and sort of outline how they will meet the liabilities of the fund will be made when they fall due. It could be from additional contributions etc.
Existing and prospective liabilities
The trustees have outlined if they will be going into pension mode and how the pension payment will be made if there is no sufficient cashflow. How the loan will be repaid if not property is not rented for a year etc.
The trustees have made an assessment about holding insurance within the fund if not then why not.
When does an investment strategy need to be reviewed?
Once a detailed investment strategy is prepared, it is not necessary to complete a detailed strategy each year. The trustees should review their investment strategy before making an investment decision to ensure it complies. If it doesn’t comply they should update investment strategy. If it does comply, they should prepare a minute of meeting to acknowledge that the investment strategy is still valid and no amendments are required.
Currently the ATO is looking at super funds with a high concentration in one asset class, in property and especially where there is a borrowing attached to that property.
Failure to comply with the above will result in contravention of Reg 4.09 and is a reportable breach to the ATO on an Auditor Contravention Report (ACR).
If there are any minor issues with the strategy then it will only be a management letter issue and no ACR will be lodged.
Need further help?
If you wish to discuss your options and your superannuation strategy, please call our experts. You can reach us on (07) 3023 4800 or at firstname.lastname@example.org.
Visit our SMSF page to find out more about how we help.
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GENERAL ADVICE WARNING: This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. We suggest you obtain specific financial advice from a licensed financial advisor.