Australians with self-managed super funds (SMSFs) are permitted to leverage their savings to make investments.
Overwhelmingly, property is the most popular investment choice, and 95 per cent of all loans in an SMSF are for the purpose of property investment.
Activity spiked after 2007, when the leveraging strategy was first allowed by the federal government and regulators.
Now, the ATO is signalling its concern about the possibility of “concentration risk” in some funds. This means the savings and viability of a portfolio is compromised due to the dominance and reliance of one asset.
Concentration risk is compounded by falling property prices across Australia and struggling rental yields in some capital cities. The superannuation fund is required to service the debt, which requires decent cash reserves and equity.
The ATO will contact SMSF investors which it believes are at risk of compromising their retirement savings based on their property strategy.
“Trustees are legally obliged under the SIS Act (Superannuation Industry [Supervision] Act 1993) to consider diversification and liquidity risk as part of their investment strategy,” said assistant commissioner Dana Fleming.
“Where we identify potential concentration risk, we will write to trustees to ensure they adequately understand and mitigate the associated risks,” she said.