In an update posted to the ATO website on Wednesday, the office confirmed that the 17,700 funds contacted as part of the diversification review used a limited recourse borrowing arrangement as well as having 90 per cent or more of their portfolio concentrated in one asset.
“In 99 per cent of the SMSFs contacted, the asset in question was property,” the ATO said.
The office also released further details of the extent of concentration risk in the SMSF market, revealing that 180,000 self-managed funds, or nearly one-third of all SMSFs, had invested 90 per cent of more of their retirement savings in a single asset or asset class.
However, the ATO added that it believed those most at risk were funds combining leverage with highly concentrated portfolios, following a report the office had co-authored with the Council of Financial Regulators in February which found leveraged and highly concentrated SMSFs were most at risk of a significant loss in case of a price drop in the single asset they were invested in.
“We were concerned that these SMSF trustees may not have given due consideration to diversifying their fund’s investments and the risks associated with a lack of diversification when formulating and reviewing their investment strategy,” the ATO said.
“While a trustee can choose to invest 90 per cent or more of their retirement savings in a single asset or asset class, concentration risk combined with leveraged borrowings can expose the SMSF and its members to unnecessary risk if a significant investment fails.”
Commenting on the update, ASF Audits executive general manager of technical services Shelley Banton said while the ATO’s campaign had brought issues with SMSF diversification to the fore, the statistics around undiversified funds may be over-exaggerated.
“Whether the real number of nearly one-third of SMSFs is correct requires more investigation,” Ms Banton said.
“This figure would also include funds that have 90 per cent of assets invested in listed shares or managed funds and does not consider the level of diversification achieved by investing across different industry sectors.”
However, she added that self-managed funds that were highly concentrated in more speculative investments could also expect to be under the microscope in the future.
“SMSFs with specific high-risk asset classes such as cryptocurrency will continue to be targeted by the ATO,” Ms Banton said.
“These trustees will also receive diversification letters to ensure they have documented how they considered investing in an investments where sharp price fluctuations could lead to significant losses.”
Donald Fogarty totally agree. Why should the ATO tell me what to do with my money!!! When my money was in an industry or retail fund and all they did was put the funds in managed funds, where was the ATO then?? My father lost $9,000 one day in his super with CBA. Where was the ATO then?? How dare they think they can tell us what to invest in. People should stand up to them. Where are your balls Australians!!!! Infuriating.
Most funds with LRBA’s would love to sell their property, EXCEPT property is at a ALL TIME LOW so THEY CAN’T. Go back in your sheltered little box ATO
Why would most LRBAs love to sell their property ? I don’t and I have not had 1 client want too either ?
Most LRBAs we see with our clients are for their own commercial business premsies, hardly any are residential, so no I wouldn’t see “most” Funds would love to sell their property at all.
This is just a political stunt. Since when did the ATO become the indirect advocate fro the industry funds. ATO its not your role to dictate to members of funds what and how they invest in, especially if what they are doing is not in breach of the SIS act. ATO mind your business we are not a communist country, well at least not yet.
So the poor Labor Govt & their Industry Super Fund besties didn’t win the unlosable election when they had already counted their eggs to shutting down SMSF LRBA’s.
Thus we now have the Labor Govt & their Industry Super Fund besties getting their ATO left wing heads together to try other ways to stop SMSF & LRBA’s.
The pure political stench of this attack is oh so obvious Labor / ISA / ATO.
Pathetic really.
Make no mistake though, any time Labor do win a federal election LRBA’s will be instantly stopped.
The ATO seems to be confusing its role. It’s not a prudential regulator, nor is it an expert on investment strategies. Stick to your knitting, people.