ATO provides SMSF investment strategy guidance.

Trustee obligations

It is a legal requirement for an SMFS trustee to prepare, develop and implement an investment strategy which is reviewed regularly.

It is important to develop a considered and documented strategy for making, holding and realising assets that is consistent with the SMSF’s investment objectives and retirement goals.

Inclusions for the strategy document

The strategy should be in writing and tailored to the circumstances of the fund such as the members age, employment status, risk appetite and retirement needs.

The investment strategy must also include:

• risks involved in making, holding and realising investments with regard to fund objectives and cash flow requirements
• diversification of fund investments and risks of inadequate diversification
• liquidity of fund assets and consideration for converting assets to cash to meet fund expenses
• ability of the fund to pay member benefits, and
• insurance considerations for each member.

What can the fund invest in?

There are no changes to the types of investments the fund can make. The  trustee is free to choose what type of asset they invest in providing it:

• is permitted by the fund’s trust deed
• is not prohibited by the super laws, and
• meets the sole purpose test.

Investing in one asset

While a trustee can elect to invest in one asset or asset class, the investment strategy should document that consideration has been given to the risks associated with a lack of diversification and should include how the trustee thinks the investment will meet the fund’s investment objectives and cash flow requirements.

Reviewing the strategy

SMSF trustees should document any decisions made arising from undertaking regular reviews (at least annually), which may be completed as part of annual trustee meeting minutes. Trustees should also be aware of significant events that prompt a review of the strategy such as:

• market corrections
• adding or removing fund members, and
• members commencing pensions with regard to liquidity requirements.

Role of the auditor

The ATO has also clarified the role of the SMSF auditor in checking that the investment strategy meets the requirements for the financial year and provides guidance in relation to rectification should the auditor identify non-compliance.

If an auditor identifies a breach, the trustee should fix it. This can be done by attaching a signed and dated addendum to the strategy or a trustee minute which addresses the requirements.

Action for non-compliance

If the auditor is required to lodge an auditors contravention report and the breach has not been rectified, the ATO will instruct the trustee to rectify the breach.

A penalty of $4,200 (indexed each 1 July) can be applied on each individual trustee or the corporate trustee for a breach of the investment strategy requirements. The directors of a corporate trustee are jointly and severally liable.

Source: MLC & ATO Investment Strategy Guidance