Speaking to SMSF Adviser, Tactical Super director Deanne Firth said while SMSF trustees have encountered some issues around investment strategies and valuations this year, there has not been a marked increase in illegal related-party loans to members among the funds audited by her firm.
Ms Firth said some of the measures implemented by the government in response to COVID, including the early release of super scheme, may have gone some way to reducing the risk of members removing money illegally from their fund.
“So, I think the government programs have helped or maybe the messaging around the penalty regime got through, but that was a big surprise for me because I had expected to see a lot,” Ms Firth said.
Earlier in the year, there was concern that the economic downturn driven by COVID and the increased pressure placed on businesses may see some SMSF trustees pull money out their fund illegally.
She noted that there had been a small number of trustees that had taken the COVID early release of super amount directly from their fund without first applying through myGov.
“Thankfully, there was only a couple [of instances] of that, but people need to be aware that you can’t take it out of super until you’ve received approval,” she said.
Investment strategies
Following the diversification letter which was sent to trustees and the impact of COVID-19 on valuations, Ms Firth said a lot of funds needed to update their investment strategy this year.
With accountants without an AFSL unable to assist trustees with updating their investment strategies, Ms Firth said she has seen a few issues in this area.
“A lot of people had updated their strategy and put percentage ranges, but they clearly hadn’t calculated them properly as their actual investments were sitting outside of those ranges,” she explained.
While accountants who don’t operate under an AFSL can’t advise SMSF clients on investment strategies, providing a table to clients of what investments are actually in their fund and highlighting the ones that are outside of the ranges listed in their investment strategy, she suggested, may help clients to understand the investments in their fund and how it compares to their strategy.
Ms Firth said that providing a questionnaire which SMSF firms can give to trustees has also helped resolve some of the issues.
The questionnaire, she explained, helps guide trustees through the process and also has the added advantage of providing further evidence that the trustee has considered diversification.
Valuations
Valuations have also been a challenge this year, she noted, particularly in Victoria where in some areas there was no comparable sales data due to the COVID lockdown.
The ATO made it clear in its valuation guidance that a rates notice alone would not be sufficient evidence of a valuation and that the trustee would need comparable sales data, but also stated that they won’t impose penalties in a situation where the fund is unable to obtain appropriate evidence due to COVID.
“However, a lot of trustees still get quite upset if they have a contravened fund over valuations, so that was a big thing this year,” she said.
