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This may also include opportunities to purchase investments that are not available through retail or industry funds, such as direct property investments. But to achieve an effective outcome and to ensure you are not taking on too much risk, it is important to have a plan for where the fund will invest, how decisions will be made and how to measure the success of your fund.
This is the role of a documented investment strategy. If members are in different life stages, the investment strategy can include separate asset allocation strategies for each. Apart from being a useful tool to help evaluate your decisions, it is a legal requirement for an SMSF.
Your auditor will ask for a copy of the strategy each year and check that the investments held meet the guidelines specified in the documented investment strategy. It is also a legislative requirement to review the strategy on a regular basis. Good practice is to review the strategy at least every 12 months, but you might choose to review it more frequently. The start of a new financial year is always a good time to take stock and review your strategy.
Under the Superannuation Industry Supervision Act, a trustee is responsible and accountable for management of the fund's assets. The documented investment strategy outlines the guiding principles for what investments are appropriate and the reasons why. The full circumstances of the fund need to be considered, as well as economic and market variables and the needs of all members. The documented investment strategy will need to include:. It is also important to state that all investments will be made in line with the sole-purpose test.
You'll need to decide which asset classes are appropriate and the limits on how much can be invested in each. So a key statement to be included in the documented strategy is one that outlines the performance objective. This is what you hope the investments will achieve. While we all hope the return is as high as possible, this is not measurable. You need to develop a more specific objective that is appropriate to the level of volatility you are comfortable with.
You might choose to include a statement that outlines the aim to achieve an expected rate of return, such as "aim to achieve an average yield of x per cent" or "aim to achieve x per cent above inflation over a x-year period". Or you might include a more functional objective such as "protect the capital value of the fund and generate sufficient income to meet cashflow requirements".
However you phrase this statement, it should be something that guides the return you are aiming for and a measure of risk that you would be comfortable with. You need to consider the range of asset classes eg cash, fixed interest, shares, property, international and decide which ones are appropriate and the limits on how much can be invested in each asset class. This decision should include an upper and lower allowable percentage to create an approved range.
It is not a valid strategy to state that it is appropriate to invest per cent of assets in cash and per cent of assets in property and per cent of assets in shares. The ranges need to be appropriate given the stated investment objective. For example, if the investment objective is to preserve capital and achieve a return of 2 per cent above inflation, a high allocation to shares may be riskier than the investment strategy allows. As such, it may not be appropriate to have an allocation to shares of, say, per cent.
It might be more appropriate to limit allocation to a lower range. The auditor will review the asset allocation as at June 30 and ensure the investments held are within the stated asset allocation at that date, but you should ensure the investments are always within the ranges. When reviewing your investment strategy, if the investments held are outside the allowed ranges, you may wish to review whether the ranges need to change or the investments need to change.
Even though not directly an investment decision, the documented strategy needs to consider the insurance needs of each member to decide if insurance should be taken out. Annual questions should include: if the member died, what would be the financial impact on dependents; and would they have sufficient resources to meet ongoing obligations and fund lifestyle? The same questions need to be asked in the event of a member suffering an illness or injury that prevents them from working.
If insurance is not taken out within the fund, the strategy needs to show that the needs have been considered and that it has been determined that the member has sufficient resources or cover already in place. The current pandemic and subsequent market volatility has created uncertainty for all investors, especially those that rely on their investment choices for their retirement incomes like SMSFs.
The start of this new financial year, in particular, is therefore a very good time to reconsider investment goals and whether or not current investment strategies will facilitate them. This could mean a slight reallocation to more defensive investments, if trustees do not have long before retirement. It also must show that it has adequately considered the insurance requirements of members and taken out policies, where required, if insurance outside of superannuation is inadequate.
It is not the same as a financial plan or a statement of advice. It is a document that shows the trustees of the fund have given appropriate consideration to how the SMSF investments will be managed, as they are required to do so by law. Depending on the make-up of the SMSF and the ages of the different members, there will be different factors to consider.
An SMSF with one member in accumulation stage, for example, will have a very different investment strategy to one that has two members, one in late accumulation stage, and the other in early retirement. Trustees will want to consider their different approaches to risk and diversification. Asset allocation is an important consideration but it is not legally required to be part of an investment strategy.
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. If you choose not to use allocated portions or percentages in your investment strategy, you should ensure material assets are listed in your investment strategy.
You should also include the reasons why investing in those assets will achieve your retirement goals. SMSF trust deeds also need to allow for the fund to make international investments. And if the fund is considering a limited recourse borrowing arrangement, the trust deed needs to allow for that too. An attractive feature for some trustees of SMSFs is their ability to hold a business property but, if it is the only investment in their SMSF, their investment strategy will need to state how and why an illiquid investment meets the needs of the trustees.
A single asset SMSF with a business property would not be the desired investment strategy of a retiree paying a pension, for example. Pensions are not the only cash flow issue that SMSF trustees need to give consideration to. An investment strategy of a trustee entering retirement, for example, might detail how that fund was considering selling down some illiquid assets and investing them in something more liquid, such as shares, in order to prepare for ongoing pension payment requirements.
More complex issues arise when different trustees want to have different approaches to risk, such as a conservative approach for older members and a more growth-oriented approach for younger members. Understandably, the older couple have a more conservative approach to investments, whereas the daughters have a slightly more aggressive approach.
However, unless the assets have been segregated into accumulation and pension purposes which would only happen upon the retirement of either or both John and Jane the investment strategy would have to incorporate both their approaches to risk and combine that in a more balanced asset allocation of all the assets in the fund.
The fund would not be able to have two separate investment strategies for accumulation funds. There are certain significant events that should prompt a review of an investment strategy. While these include the addition of a new member, or a member starting a pension, earlier this year the ATO also included a market correction as a significant event. Trustees may, for example, have recently found as a result of their balances falling that their growth allocation was much higher than they realised.
That could be a reason to change asset allocation targets in an investment strategy slightly away from equities. A newer requirement of an SMSF investment strategy is the requirement to consider insurance. Although a simple statement that the trustees have considered it and decided it is not necessary is probably sufficient, documents supporting why this is the case will offer more legal support if the initial statement is ever questioned.
An SMSF investment strategy needs to be a document that sufficiently covers the five things it is required to acknowledge. It can be a Word document written up by the trustees. Many SMSF platform providers have templates, as do advisers. Depending how complex your SMSF is, shorter may be better.
As the updated ATO information suggests, if you use percentage investment ranges you need to explain why you have chosen those ranges and how you plan to invest the funds in those asset classes. This would mean the inclusion of a paragraph like the following:. The trustees have agreed that at this stage of their lives a relatively high allocation to growth assets such as equities will help maximise their superannuation in order to achieve a beneficial retirement outcome.
Both documents are audited annually. But the first thing you need to do is act on it. An SMSF auditor might suggest, for example, that an investment strategy be more specific as it relates to a complex investment product, such as crypto currency or futures, if a fund is investing in those assets. An SMSF is only allowed to invest in such assets if the trustee can justify the reason for these investments. You need to review the investment strategy at least annually, according to the Australian Taxation Office, and it is also a good idea to review around life-changing or significant events.
Any reviews need to be documented in a minute, which details how the trustees have considered the investment strategy and propose no change, or detailing changes if they have been proposed.
The ATO is responsible for issuing a determination advising the member they are eligible to release an amount from their super account and the SMSF is not authorised to make a payment until this is received. Employers have a six-month window until 7 September to disclose, lodge and correct any unpaid SG amounts for their employees. If employers take advantage of the amnesty provisions offered by the ATO, they can claim deductions and not incur administration charges or penalties when they correct any SG shortfalls.
SMSF can expect to receive additional contributions from older fund members following the introduction of new regulations permitting fund members aged 65 and 66 to add to their super account without needing to meet the requirements of the work test. The amendments to the SIS Regulations commence on 1 July and increase the age at which fund members can make personal super contributions without having to worry about the work test. Following removal of the work test requirements for personal contributions made by fund members aged 65 and 66, SMSF trustees will need to be on the lookout for the passage through Parliament of accompanying legislation covering the bring-forward arrangements.
At the time of writing, the legislation is currently before the House of Representatives, but is yet to be passed and come into effect. From 1 July , SMSF trustees will be permitted to accept a spouse contribution for a fund member until they reach age 75 a rise from the current limit of age Receiving spouses aged between 67 and 75 will still need to meet the requirements of the work test.
The new rule means older members will be able to receive a spouse contribution to top up their super account for an additional five years. Trustees may find their auditors asking to see more copies of documents relating to specific transactions.
The changes affect all for-profit private sector entities that self-assess their financial reporting requirements and prepare special purpose financial statements SPFS. More information is available on the ATO website. After the turmoil of COVID, several significant proposals relating to the super system did not make it through Parliament or are awaiting regulatory action. These include:. Become a SuperGuide Premium member and access expert guides for SMSFs, on topics such as costs, compliance, administration, investment, borrowing and pensions.
Discover valuable super and retirement strategies, the most popular shares, managed funds and ETFs for SMSFs, the latest super rates and thresholds, contributions caps and more. Includes more than articles, how-to guides, checklists, tips, calculators, case studies, quizzes and a monthly newsletter. Find out more. You should consider whether any information on SuperGuide is appropriate to you before acting on it.
If SuperGuide refers to a financial product you should obtain the relevant product disclosure statement PDS or seek personal financial advice before making any investment decisions. Has COVID impacted on the 'fund's underlying investment values and, if so, should new valuation or rental income appraisal be obtained from appropriately qualified industry experts e. For any release of payments from superannuation monies, the Fund auditor will require the relevant documentation and ATO release authority.
Release payments include:. SMSFs holding commercial property may have already been approached by their tenants for some form of rent relief during this time, as their businesses may be under financial stress. The key to providing this is to ensure the SMSF trustees can show appropriate negotiations and documentation of any amendments made to lease agreements. This is particularly important where the tenant is a related party, for example, the business premises of the member's own business.
The SMSF auditor will be looking for appropriate documentation to support any changes to the terms of the lease when they conduct their audit for the year ended 30 June If you do not utilise the full amount of your concessional contribution cap in a year, the unused amount can be carried forward and accumulated over a rolling five-year period.
This provides opportunities to make lump sum contributions of all unused amounts to reduce your taxable income in a future income year. In addition, individuals may be entitled to a two or three-year bring-forward period for their own non-concessional cap, based on their total superannuation balance i. When claiming a Personal Superannuation Contribution deduction in your individual income tax return, it is important to include:. You must give a notice of intent to claim a deduction to your fund on or before whichever of the following occurs earliest:.
Superannuation is a complex area and implementing the right actions and strategies is vital to ensure your superannuation savings are maximised. If you require any assistance, BDO's Superannuation team is here to help. Do not hesitate to contact your local adviser to seek assistance and ensure your savings are working for you. Paul Rafton , National Leader, Superannuation. Income streams The temporarily reduced minimum drawdown rate set out below applies to the year ending 30 June , as well as last financial year up to 30 June Age bracket Minimum annual drawdown Minimum percentage factor years ending 30 June and Standard maximum pension percentage factors Under 65 2.
On the ATO's radar JobKeeper The ATO's compliance efforts for JobKeeper are focused on ensuring: Entities meet the eligibility requirements in relation to business income Entities are claiming for eligible employees Eligible business participants are correctly making claims Entities are not manipulating their turnover to satisfy the decline in turnover test.