In August last year the ATO wrote to SMSF Trustees where their fund held a single property with a Limited Recourse Borrowing Arrangement. The letter raised the ATO’s concern around a lack of diversification and the potential to breach SIS operating standards. The ATO also wrote to fund auditors reinforcing their obligation to ensure that all investment strategies complied with SIS, not just those investing in property. As a result we have seen a significant increase in management letters.
The ATO have issued further guidance which can be accessed from the following link. https://www.ato.gov.au/super/self-managed-super-funds/investing/your-investment-strategy/
This guidance makes it clear that auditors will be required to lodge an Audit Contravention Report (ACR) where breaches identified in a previous year have not been rectified. ACR’s not only incur additional audit fees, but in the extreme can expose trustees to penalties of $4,200 each where they act as individuals. While we expect the ATO will take a measured approach, it flags their mindset that this is an area that needs to be improved, which will lead to harsher enforcement over time.
We recommend that you review your funds to identify any that may require a replacement investment strategy.
SMSF Engine are working on a solution for our clients which we expect to have available prior to the end of the financial year.
As always SMSF Engine are available to assist with your workload whether that be on a one-off or permanent basis.