Investment Strategy review

As a trustee you are required to review your investment strategy regularly to ensure it continues to reflect the purpose and circumstances of your fund and its members. An SMSF investment strategy must take into the account the following items:

• The risks involving in making, holding and realising the SMSFs investments, their expected return and cash flow requirements of your SMSF
• The diversification and composition of your SMSF investments
• The liquidity of your SMSF investments, having regard to expected cash flow requirements
• The SMSFs ability to pay the liabilities of the fund as they fall due
• Considering whether to hold insurance cover for each member of your SMSF

Your investment strategy needs to be reviewed at least once a year and this will be evidenced by your approved auditor. It is also important to review your strategy whenever the circumstances of any of your members change.

Annual Returns

All SMSFs need to lodge a SMSF annual return with the ATO each year, in order to report the funds income tax, super regulatory information, member contributions and pay the supervisory levy. The lodgement and payment date for most SMSFs is 15 May each year. For all SMSFs where one or more prior year tax returns were outstanding the lodgement date is 31 October. All new registrants have a lodgement date of 28 February.

All SMSFs are also required to have their financial statements and return audited by an approved auditor. Your SMSF annual return cannot be lodged until the audit of your SMSF has been finalised. Your auditor will examine your financial statements and asses your SMSFs compliance with the superannuation laws. Remember to appoint your auditor early enough to allow time for the lodgement of your SMSF annual return. Failure to lodge your SMSF by the due date may result in penalties.

Valuation of assets

When preparing the financial statements of the fund trustees are required to value each fund asset at market value. Market value is generally defined as being ‘the amount that a willing buyer of the asset could reasonably be expected to pay to acquire the asset from a willing seller’. For funds that hold listed shares and managed investments, the valuation of these assets is uncomplicated. Assets such as, residential and commercial property, unlisted entities and collectables necessitate a more thorough approach.  You must be able to demonstrate that the valuation has been arrived at using a fair and reasonable process. It is recommended that independent valuations be obtained for assets such as properties. A valuation can also be undertaken by a fund trustee as long it is based on objective and supportable data.

Timely valuation of assets are now more important than ever due to the incoming legislation that requires members to know their total super balance at 30 June in order to determine their eligibility for certain contributions such as non-concessional contributions and concessional catch up concessions. Pension transfers also need to be valued so SMSFs trustees can ensure members do not breach the $1.6 million transfer cap. 

Estate planning and death benefit nominations

The new superannuation reforms means that it is essential that you review your estate planning strategy, especially with larger funds of money which may be forced out of the superannuation system due to the $1.6 million dollar transfer balance cap.

Consideration should be given to the trusteeship of your SMSFs, be that corporate or individual. However, the SMSF Association believes that a corporate trustee is always best practice for an SMSF due to its ability to be administratively easier in estate planning.

Enduring Powers of Attorney may also be crucial for members of SMSFs. An Enduring Power of Attorney allows trustees to appoint someone to make decision on their behalf upon losing mental capacity. Failure to have an Enduring Power of Attorney can result in delays and the potential for the fund to be non-complying.

Binding nominations need to also be considered as part of any estate plan. Binding nominations specifies how superannuation benefits will be paid on your death. All these considerations are specialist areas of law and need to be checked with your SMSF trust deed. It is important you seek a specialist estate planning lawyer with regards to estate planning.

SIS Compliance

Pensions

With 30 June fast approaching it is imperative to ensure you have withdrawn your minimum pension amount for the financial year or not exceeded your maximum if you have a transition to retirement income stream. If the minimum pension’s standards are not met, the pension is to cease and the assets supporting the pension are deemed to not be in retirement phase for the whole of the financial year. You also must ensure that all pension documentation is on file and appropriately signed.

Record Keeping

The ATO have identified that poor and inadequate record keeping is a problem for SMSFs. The following records need to be kept for a minimum of five years:

• Accurate and accessible accounting records that explain the transactions and financial position of your SMSF
  • This will include records kept for the accessing of CGT relief
• An annual operating statement and an annual statement of your SMSFs financial position
• Copies of all SMSF annual returns and documents lodged with the ATO

Contribution limits and reserving strategies

Part 1 of this three part series detailed all the contribution changes that will affect your SMSF from 1 July 2017. Remember that the new lower concessional cap rules mean that you should check that all concessional contributions, especially salary sacrifice arrangements you receive in the 2017/18 financial year do not exceed $25,000. This also includes any reserving strategy you may intend to use in June 2017.

Non-concessional limits also change from 1 July 2017, so be prepared that you have an understanding of your total superannuation balance at 30 June 2017 and make the appropriate contributions.

Planning for the $1.6 million caps and CGT relief

Finally be aware of the new $1.6 million transfer balance cap, CGT relief, and the documentation that needs to be formulated for 30 June 2017. Minutes should be created detailing that members intend to transfer values out of retirement phase as to not breach the new transfer balance cap. Whilst minutes documenting which method of CGT relief is intended to be undertaken should also be formulated. Staying on top of compliance and documentation such as these will help you easily navigate the new superannuation reforms and compliance obligations with the ATO.

Seek advice from an SMSF Specialist

It is important to seek the advice of an SMSF Specialist in order to assist you in understanding these rules and how they may relate to your specific circumstances. To find your nearest SMSF Specialist, use our Find a Specialist function.