Individual Investment Strategy Documentation

In February 2020, the Australian Taxation Office (ATO) released new guidelines setting out what Trustees must include in their Investment Strategy document.

The new guidelines make it clear that the obligations of SMSF Trustees is to document their investment strategy in greater detail taking into account a number of influences that will impact the end retirement benefits.

“ Your investment strategy is your plan for making, holding and realising assets consistent

with your investment objectives and retirement goals. It should set out why and

how you’ve chosen to invest your retirement benefits in order to meet these goals."

(ATO 17 February 2020)

 

In its guidance, the ATO noted that an “SMSF investment strategy should be in writing and also be tailored and specific to the relevant circumstances of the SMSF rather than a document which just repeats the words in the legislation.”

The ATO noted that “relevant circumstances” may include, but are not limited to personal circumstances of the members such as:

  • their age

  • employment status, and

  • retirement needs

 

which influence a member’s risk appetite.

The strategy should also explain how the investments within the SMSF meet each member’s retirement objectives.

In particular, under the super laws your strategy must consider the following specific factors in regard to the whole circumstances of your fund:

  • risks involved in making, holding and realising, and the likely return from your fund’s investments regarding its objectives and cash flow requirements

  • composition of your fund’s investments including the extent to which they are diverse (such as investing in a range of assets and asset classes) and the risks of inadequate diversification

  • liquidity of the fund’s assets (how easily they can be converted to cash to meet fund expenses such as the cost of managing the fund and income tax expenses)

  • fund’s ability to pay benefits (such as when members retire and require a lump sum payment or regular pension payments) and other costs it incurs

  • whether to hold insurance cover (such as life, permanent or temporary incapacity insurance) for each member of your SMSF.

The ATO goes on to state that when formulating the investment strategy:

“….it is not a valid approach to merely specify investment ranges of 0 to 100% for each class of investment. You also need to articulate how you plan to invest your super or why you require broad ranges to achieve your investment goals to satisfy the investment strategy requirements.”

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0403 227 667
neil.schafer@advisoryventures.com.au

 

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