Diversify or face a $4200 fine. That was the blunt warning contained in 17,000 letters to SMSF trustees from the tax office that has sparked widespread fear among superannuation trustees.
The letter went to trustees of funds that have 90 percent or more of their retirement funds in a single asset class, such as property. This was a misguided intervention from the tax office. They have since clarified its investment strategy requirements for trustees after its letter-drop crackdown last year spurred investor panic.
You’re free to hold your choice of assets in your SMSF – provided it’s permitted by super laws and your fund’s trust deed. Super assets must also pass the sole-purpose test, which stipulates they must be solely dedicated to building a retirement nest-egg.
You’re not prevented from investing your entire SMSF portfolio in a sole asset – a business property is a popular choice – or a single sector. However, your strategy must articulate how you plan to invest your super in order to meet your retirement goals.
Historically, a typical approach by SMSF trustees is to have an investment strategy that picks a percentage number between 0 and 100 per cent for a broad range of assets. The ATO explainer suggests trustees consider specifying “appropriate allocations or percentage or dollar ranges for each class of investment you have chosen”.
We use and continuously refer back to an asset allocation approach to investing. However, the strategic asset allocation ranges have not been incorporated into the investment strategy document. Therefore, as part of the FY 20 financial statements, we will be reviewing the fund investment strategies to ensure it is aligned with the new ATO guidance and that it reflects the asset allocation approach as outlined on our advice.
The information provided should not be considered personal financial advice as it is intended to provide general advice only. The content has been prepared without taking into account your personal objectives, financial situations or needs. You should seek personal financial advice before making any financial or investment decisions.