SMSF - Investment Strategy and Diversified Portfolios
Investment Strategy
One of the basic requirements of a self-managed superannuation fund (SMSF) is that the members perform the same role of investors that would otherwise likely be fulfilled by professionals.
To that end, the SMSF rules require that the SMSF trustees formulate and give effect to an investment strategy that has regard to the circumstances of the fund and in accordance with investment objectives.
Note that the strategy must take into account restrictions on investments under the SMSF compliance rules, such as the sole purpose test. The investment strategy should be in writing so that it is easier to show that it complies with the various compliance rules.
If you are concerned about your SMSF’s investment strategy, call LAC today on 1300 799 888 (Sydney)or 1300 734 638 (Melbourne).
Diversified portfolio
An important part of the investment strategy rule is the requirement that the investment strategy of a self-managed superannuation fund (SMSF) take into account the degree to which SMSF investments are diversified and whether risks are present from inadequate diversification.
Normally, no SMSF investment strategy would be considered adequate if it involved investment of assets in only one asset or class of assets unless the SMSF can manage the consequent risk.
If you have an SMSF that has only one form of investment or invests in a single asset, or are otherwise concerned about the diversification of its portfolio, call LAC today on 1300 799 888 (Sydney) or 1300 734 638 (Melbourne).
SMSF - Investment Strategy and Diversified Portfolios Articles
Self Managed Superannuation Funds (SMSF) - Borrowing a New Amount to Repair an SMSF Instalment Warrant Asset
Date: December 02, 2011
Author(s): Jonathan Lim B.A., LL.B. (Hons)
An issue raised before the ATO very recently is whether a self-managed superannuation fund (SMSF) is permitted to borrow a new amount to repair an instalment warrant asset it already holds. As we have discussed in previous articles, an SMSF is generally prohibited from borrowing money. However, an exception is available for limited recourse borrowing arrangements (better known as instalment warrants) in which the SMSF borrows money to pay for an asset that is held in a property trust and only transferred to the SMSF when the amount is paid off.
Self Managed Superannuation Funds (SMSF) - Can an SMSF Carry on a Business? Part 1 of 2
Date: December 02, 2011
Author(s): Jonathan Lim B.A., LL.B. (Hons)
An old question relating to self-managed superannuation funds (SMSFs) is whether they are permitted to carry on a business. This is the first in our two part article on the ATO’s attitude to such activities, which is ambiguous and contains many pitfalls for the unwary.
Self Managed Superannuation Funds (SMSF) - Can an SMSF Carry on a Business? Part 2 of 2
Date: December 02, 2011
Author(s): Jonathan Lim B.A., LL.B. (Hons)
In Part 1 of this article, we looked at the ATO’s general disapproval of the carrying on of businesses by self-managed superannuation funds (SMSFs). This part of the article will look at the ATO’s apparent change in attitude to this issue. However we will analyse the real effect of the ATO’s new publication and warn about how little has really changed.
Self Managed Superannuation Funds (SMSF) - In-specie Payments by an SMSF
Date: December 02, 2011
Author(s): Jonathan Lim B.A., LL.B. (Hons)
It has always been accepted that a self-managed superannuation fund (SMSF) can make lump sum payments in specie. What is not so clear is what happens when a lump sum is paid as a commutation of part of a superannuation income stream. This issue, which has sometimes arisen in the past, has been brought recently before the ATO.
Self Managed Superannuation Funds (SMSF) - Insurance and SMSFs
Date: December 02, 2011
Author(s): Jonathan Lim B.A., LL.B. (Hons)
In our article entitled SMSFs and personal injury liability we discussed the idea of a self-managed superannuation fund (SMSF) obtaining public liability insurance to protect itself against personal injury claims. In this article, we will discuss forms of insurance that the SMSF can obtain over its members. This can include life insurance, disability insurance and trauma insurance. The effect of such insurance upon the SMSF has been the subject of recent debate.
Self Managed Superannuation Funds (SMSF) - Partial Lease by an SMSF of an In-house Asset
Date: December 02, 2011
Author(s): Jonathan Lim B.A., LL.B. (Hons)
It is well-known that an exception to the restriction on in-house assets held by a self-managed superannuation fund (SMSF) is the real property exception, under which the property is leased to a member or related entity for business purposes. One issue that has arisen recently is what happens when the in-house asset is only partially leased.
Self Managed Superannuation Funds (SMSF) - SMSFs and ESS interests
Date: December 02, 2011
Author(s): Jonathan Lim B.A., LL.B. (Hons)
An employee share scheme (ESS) is a scheme under which an employer provides shares or options (ESS interests) to employees at a discount. Unfortunately, the ATO has noted many instances of employees nominating their self-managed superannuation fund (SMSF) as the acquirer of ESS interests under an ESS. While employees may generally nominate another party as the acquirer of ESS interests, nominating the SMSF gives rise to serious issues, as we shall see.
Self Managed Superannuation Funds (SMSF) - SMSFs and Personal Injury Liability
Date: December 02, 2011
Author(s): Jonathan Lim B.A., LL.B. (Hons)
It may seem obvious, but self-managed superannuation funds (SMSFs) can be liable in their own right to personal injury litigation. Liability for personal injury caused by faults in property will normally fall under the tort of negligence. Under tort law, property owners have a common law duty of care to all individuals on their premises. If the required standard of care is not met, and injury occurs to the tortfeasor in a reasonably foreseeable manner, then the property owner is liable for negligence.
Self Managed Superannuation Funds (SMSF) - SMSFs and Rectifying In-house Asset Breaches
Date: December 02, 2011
Author(s): Jonathan Lim B.A., LL.B. (Hons)
A non-complying self-managed superannuation fund (SMSF) is open to all sorts of penalties. However, there is often some leeway for breaches, provided action is taken quickly. This article deals with the rectification of a breach of the in-house asset rule.
Self Managed Superannuation Funds (SMSF) - SMSFs and Tax Exemptions on Pension Assets
Date: December 02, 2011
Author(s): Jonathan Lim B.A., LL.B. (Hons)
Once a self-managed superannuation fund begins to pay income stream benefits (ie a pension) to any of its members, it can begin to claim a tax exemption on income earned on assets it holds that are being used to produce the pension. This article deals with the nature of this exemption and the misunderstandings that sometimes arise.
Self Managed Superannuation Funds (SMSF) - Stepchildren and SMSF Death Benefits
Date: December 02, 2011
Author(s): Jonathan Lim B.A., LL.B. (Hons)
The rules applicable to self-managed superannuation funds have restrictions on who can receive cashed out member benefits. One rule is that member benefits may be cashed in favour of a member’s dependants, if the member dies. One issue that has been raised recently is whether the ATO would accept a stepchild as the dependant of its step parent if its natural parent dies first or the pair divorce. This is apparently an issue that has already come up quite often in Australia.
Self Managed Superannuation Funds (SMSF) - Excess Contributions Tax – Release Authority
Date: November 28, 2011
Author(s): Jonathan Lim B.A., LL.B. (Hons)
If an individual makes contributions to his or her self-managed superannuation fund (SMSF) and these contributions exceed the caps relevant to that type of contribution, then the individual may be liable to excess contributions tax (ECT).
Self Managed Superannuation Funds (SMSF) - Income Streams – When They Start
Date: November 28, 2011
Author(s): Jonathan Lim B.A., LL.B. (Hons)
When a member of a self-managed superannuation fund (SMSF) satisfies a condition of release, he or she may be eligible for an income stream benefit from the SMSF. When a member is receiving an income stream of this sort, it can be highly relevant for tax purposes (both for the member and the SMSF) to determine exactly when the income stream commences and ceases. The ATO has just released draft guidelines on how to determine these times (Draft Taxation Ruling TR 2011/D3).
Self Managed Superannuation Funds (SMSF) - Losses on Disposal of Shares
Date: November 28, 2011
Author(s): Jonathan Lim B.A., LL.B. (Hons)
A self-managed superannuation fund (SMSF) is generally discouraged from engaging in business. Although the ATO and Parliament have failed to make any binding statements on this point, it is fairly clear that they expect this point to be followed. A related issue that has clearly been vexing the Government and the ATO in recent times has been that of the treatment of SMSF share sale losses.
Self Managed Superannuation Funds (SMSF) - Recording SMSF Contributions
Date: November 28, 2011
Author(s): Jonathan Lim B.A., LL.B. (Hons)
The Commissioner of Taxation has taken advantage of two recent cases before the Administrative Appeals Tribunal (AAT) to emphasise the importance of proper record-keeping by self-managed superannuation funds (SMSFs). He also emphasized the duty tax agents have to ensure that client SMSFs are not financially disadvantaged.
Self Managed Superannuation Funds (SMSF) - SMSF Auditors
Date: November 28, 2011
Author(s): Jonathan Lim B.A., LL.B. (Hons)
Every self-managed superannuation fund (SMSF) is required to arrange an annual audit of its accounts, statements and compliance. Audits must be carried out by an “approved auditor”. The SMSF trustee appoints an approved auditor every year and must provide the auditor with all documents needed for the audit. All audits must be in writing and highlight any important issues that may arise.
Self Managed Superannuation Funds (SMSF) - SMSFs and Non Arm's Length Income
Date: November 28, 2011
Author(s): Jonathan Lim B.A., LL.B. (Hons)
A self-managed superannuation fund (SMSF) is concessionally taxed at a very low rate. There is naturally a temptation in some quarters to exploit this fact by using an SMSF to help split income. However, the ATO has recently warned that the widespread abuse of an SMSF in this manner, whether the members believe it to be legal or not, is not in accordance with the law.
Self Managed Superannuation Funds (SMSF) - Winding Up an SMSF
Date: November 28, 2011
Author(s): Jonathan Lim B.A., LL.B. (Hons)
There comes a time in many instances when a self-managed superannuation fund (SMSF) must be wound up. Yet the Commissioner has recently warned that winding up procedures are frequently not being followed by SMSF trustees. In essence, the task of the SMSF trustee when winding up the SMSF is: to deal with all of the SMSF’s assets so that none remain; and to complete all administrative obligations.
Self Managed Superannuation Funds (SMSF) - Early Release Schemes
Date: November 25, 2011
Author(s): Jonathan Lim B.A., LL.B. (Hons)
For several years now, the Commissioner of Taxation has been making public his disapproval of schemes that illegally promise the early release of self-managed superannuation fund (SMSF) benefits. These types of scheme apparently have not disappeared, for the Commissioner has once more targeted them in his 2011-12 compliance program for SMSFs. Indeed, this year it would be wise for all SMSF trustees to familiarise themselves with the nature of this common and potentially disastrous form of illegal scheme.