A lawyer has alerted individuals operating SMSFs that they need to be properly documenting their investment journey or they could suffer the wrath of the ATO, after it released new guidance on the matter.
The advice from SUPERCentral comes in response to the Australian Taxation Office’s (ATO) issuing of new guidelines in relation to SMSF investment strategy compliance.
While the rules and the legislation have not actually changed, the ATO has stepped up its documentation requirements.
According to the guidance, the regulator had said an SMSF investment strategy should be “your plan for making, holding and realising assets consistent with your investment objectives and retirement goals”.
“It should set out why and how you’ve chosen to invest your retirement benefits in order to meet these goals,” it continued.
“Superannuation laws require that you must prepare and implement an investment strategy for your self-managed super fund (SMSF) which you must then give effect to and review regularly.”
In the guidance, it was specified that an investment strategy “should be in writing”.
Furthermore, it should be “tailored and specific to the relevant circumstances of your fund, rather than a document which just repeats the words in the legislation”.
The ATO had noted that when formulating an investment strategy, “it is not a valid approach to merely specify investment ranges of zero to 100 per cent for each class of investment”.
It indicated that “you also need to articulate how you plan to invest your super or why you require broad ranges to achieve your investment goals to satisfy the investment strategy requirements”.
For Maria Siu, superannuation special counsel at SUPERCentral, the adoption of the “tailor-made” investment strategy approach by the ATO “will necessitate changes in some industry practices”.
She noted that a “one size fits all” template is unlikely to deliver the required results that the Tax Office is looking for.
She has therefore advised that to start tailoring the fund’s circumstances to investment outcomes may require individuals to obtain financial advice — utilising its consequential licensing and documentation implications.
It has to be borne in mind “that the ATO is not a prudential regulator and does not review the merits and suitability of the investments in an investment strategy”, Ms Siu did highlight.
Therefore, a properly formulated investment strategy could be used as a defence — it would “provide an appropriate level of protection for the trustees and advisers should the investment fail, against actions that might be taken by any person ‘who suffers loss or damage’ as a result”, the special counsel considered.