Investment strategy SMSF in Australia: Ensuring your investment strategy accurately reflects the SMSF’s current asset,
allocation is an important compliance responsibility.
It is good practice to review your current asset allocation against your documented strategy.
If the fund’s current allocation falls outside the documented strategy you may wish to make an adjustment to either, so they fall into line.
A regular review is something you should get in the habit of doing as it’s required by the super law.
Common situations where your SMSF’s investment strategy should be reviewed:
- Trustees purchasing property for their fund but not updating the strategy.
- An asset class being over the fund’s target position.
- Trustees moving from accumulation to pension phase and changing asset allocation.
- Trustees choosing to invest in predominantly one asset or asset class.
Asset concentration risk is heightened in highly leveraged funds, such as where the trustee has used a limited recourse,
borrowing arrangement to acquire the asset.
This can expose members to a loss in the value of their retirement savings should the asset decline in value.
It could also trigger a forced asset sale if loan covenants (for example, the loan to valuation ratio) are breached.
Asset concentration risk is heightened in highly leveraged funds and could expose members to a loss in the value of their retirement savings.
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Capital Gains Tax
In the lead up to the end of the financial year, trustees or advisers may wish to undertake tax planning to minimise,
the CGT position of their SMSF.
This is usual where an SMSF has assets with an unrealised loss position.
Trustees may seek advice on whether it is worthwhile to crystallise the unrealised losses to reduce any of the fund’s realised gains.
There may be tax consequences arising from simply selling an asset and buying it back immediately.
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One of the trustee’s most important obligations is to ensure that assets are valued at market value each year.
The value of some of the fund’s investments may be easy to obtain, such as listed company shares and bank account balances.
However, when it comes to real estate and other fund investments, market value may not be that obvious and,
a valuation may be required.
• For assets where a valuation is not easy to determine, obtain evidence to support whatever value you decide,
on to assist when the fund is audited.
• For more exotic assets such as privately held unlisted shares, unit trust holdings or artworks and collectables,
raise the matter with the fund’s auditor to see whether the fund is on the right track.
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It is essential that the minimum pension is paid for existing pensions and the maximum level is not exceeded for,
Transition to Retirement pensions.
For a pension that does not satisfy the payment rules, any income on assets supporting the pension will be taxed at 15% rather than be tax exempt.
When drawing more than the minimum pension consider taking any amount over the minimum as a pension payment,
or as a lump sum.
• Lump sum commutations of your pension balance will result in a reduction of your Transfer Balance Account and,
can be used to access additional pension benefits in future.
• Instruct your SMSF that you are drawing a lump sum prior to it being made from your pension balance, otherwise it,
will be treated as a pension payment.
• If you have more than one pension account or an accumulation account in your SMSF decide whether any additional,
payment comes from one or more of those accounts.
• If you have multiple pension accounts, consider the tax-free proportion of each and whether grandfathering could,
apply to qualify for Centrelink benefits or Seniors Health Care Card.
• Consider whether the pension is reversionary or non-reversionary or the impact of any binding death benefit nominations.