Smarter SMSF chief executive Aaron Dunn said recent commentary from the ATO suggests that issues around diversification and asset concentration for SMSFs “remain on the ATO’s radar”.
“I would expect, potentially, to see further letters sent out at some point by the ATO to trustees in regard to this particular issue,” Mr Dunn said.
Last year, the ATO contacted 17,700 SMSF trustees and their auditors who had more than 90 per cent of their assets in a single asset class. The ATO reminded these trustees of their legal obligations to formulate an investment strategy that considers asset concentration risks and diversification.
“This was a very targeted approach that was based on lodgements at the time and the ATO’s need to report back to the Council of Financial Regulators,” he said in a recent Smarter SMSF webinar.
“We may see further letters and information being posted. SMSF auditors are also requesting more information [about investments].”
Mr Dunn also pointed out that just because an SMSF didn’t receive one of these letters last year, the fund could still have a heavy asset concentration.
“Over 30 per cent of funds have investments with a heavy concentration in one asset class,” he said.
He also noted that the ATO recently highlighted in its COVID-19 FAQs that significant events such as market corrections may prompt a review of a fund’s investment strategy and may require an update to that strategy.
“We did see fairly heavy corrections in March earlier this year when the COVID pandemic hit globally, and therefore, we need to look at what the trustees did inside the fund in respect of their investment strategy,” he explained.
“If they did make some fundamental changes, then this needs to be reflected in the investment approach for the fund.”
Where assets have fallen outside of the scope of what the investment ranges are, then they will need to take necessary action or steps to make adjustments or update the investment strategy of the fund, he said.
If the ATO are so good at investing why are they not in early retirement?