ATO issues SMSF investment strategy warning to Trustees - letters are being sent.
The ATO has commenced issuing letters to Trustees and auditors of SMSFs where they have identified that the SMSF holds 90% or more of its investment holding in one asset.
This most typically occurs where the only asset in the SMSF is a single property.
The ATO are requiring the Trustees and Auditors to justify how, in these cases, the fund's investment strategy meets the requirements in Regulation 4.09 of the Superannuation Industry (Supervision) Regulations 1994 , which requires that the fund is suitably diversified.
The ATO expects to see documented evidence from the SMSF Trustee which demonstrates that the following were considered:
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diversification of the fund's investments and the risks associated with inadequate diversification; and
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that other relevant factors were considered such as the risk involved in making, holding and realising and the likely return from the investments having regard to the fund's objectives and expected cash flow requirements;
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the liquidity of the SMSF's investments, having regard to its expected cash flow requirements and ability to discharge its existing and prospective liabilities; and
- whether the trustees considered holding insurance for one or more of the members.
