Last year the ATO sent a panic amongst SMSF trustees when it sent out a poorly drafted letter warning trustees of SMSFs with most or all of its funds in one asset class that they should consider their investment strategy.

The ATO has now released guidance to support and explain its position and it is something all SMSF trustees should take note of to ensure their funds remain compliant and they have the relevant documentation their SMSF auditor will request.

The main takeaways from this guidance is: –

• Your investment strategy should be in writing;
• Your investment strategy should be tailored to your fund and not just take a template or repeat the regulations;
• It should be regularly reviewed to ensure the fund’s investment meet this strategy and to consider the changing needs of the members of the funds (i.e. current ages, employment status, retirement needs, risk appetite)
• It should cover subjects like member’s risk preferences, liquidity needs, composition of assets, need for personal insurances;
• The strategy should give a permitted percentage range across the various asset classes (i.e. cash, fixed interest, Australian shares, property) and this range should be more specific than just 0-100%;

The guidance does confirm that those funds investing in one asset class are not in breach as long as their investment strategy reflects this and this investment is appropriate given the member’s situation. It also confirms that a lack of investment strategy is not an instant breach but will be a reportable breach if it occurs in two consecutive years.

If you need assistance formulating your investment strategy or would like to know more, please do not hesitate to contact Elysium and our financial advisor who will be able to assist.