The ATO is set to contact thousands of SMSFs, that the tax office is concerned may be undiversified, about their investment strategies.
The ATO announced that it will be contacting around 17,700 SMSF trustees, and their auditors, at the end of August “where our records indicate the SMSF may be holding 90% or more of its funds in one asset or a single asset class”.
“We’re concerned some trustees haven’t given due consideration to diversifying their fund’s investments; this can put the fund’s assets at risk,” said the ATO.
“Lack of diversification or concentration risk, can expose the SMSF and its members to unnecessary risk if a significant investment fails.”
In the communication the ATO will ask the SMSF trustees to review their investment strategy, and “clearly document” their reasons for investment decisions.
Diversification is one of the things SMSF trustees have to consider as part of the investment strategy of their fund. SMSF trustees are required to “formulate, review regularly and give effect ” to an investment strategy, including consideration of risk, return, diversification, liquidity, the ability to discharge liabilities, and if the fund should hold insurance for members.
“We’ll also ask trustees to have their documentation ready for their SMSF’s approved auditor for their next audit to help the auditor form an opinion on the fund’s compliance with these requirements,” said the ATO.