by Mark Phillips

The ATO have made it clear that a complying investment strategy is a critical element for every SMSF and we can expect that will continue to be a key focus in the future. Fund trustees are required by law to prepare and implement an investment strategy that is tailored and specific to the relevant circumstances of the fund.

The important elements that should be contained in every strategy include:

• A consideration of member ages, anticipated retirement dates and their benefit mode;
• The risks of making, holding and realising fund assets;
• The composition of fund assets including considerations for diversification or lack thereof and how that meets the fund’s needs;
• Liquidity for taxation and fund expenses;
• Member benefit requirements including lump sums and pension income; and
• Insurance for each member.

The ATO puts the onus squarely on the fund auditor to ensure the trustee has met their obligations. The auditor’s role is to ensure:

• The SMSF had a complying investment strategy in place for the financial year;
• The fund’s investments during the financial year were in accordance with the strategy; and
• The strategy has been reviewed at some stage during the year.

While most auditors will work with clients to rectify issues with their investment strategy, they will in some cases be obliged to lodge an auditor contravention report (ACR). The ATO requires the auditor to lodge an ACR where they have identified the same breach in a previous income year and it has been repeated in the current income year or where it is a breach from a previous year that remains unrectified at the time of audit. There is a more specific test for funds that are less than 15 months old. Clearly it is preferable to avoid an ACR as they incur additional fees and may lead to further action by the ATO.

We understand that sourcing complying investment strategies can be challenging, particularly where templates are used as they tend to produce generic outcomes. We have developed a solution that steps through each of the elements, allowing the user to select both pre-defined and customised responses. The link can be sent directly to those trustees that have sufficient knowledge and understanding of their fund, or be used as part of a broader review with those clients that need more assistance. Either way the cost is very competitive at $99 or $109 with the digital signing option.