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Investment strategy breaches tipped to see rise in disputes

With the ATO more heavily focusing on investment strategies and imposing penalties where members fail to meet the requirements, this is one area that could see an increase in legal disputes, warns a technical expert.

SMSF Miranda Brownlee 25 September 2020
— 1 minute read

Last year, the ATO wrote to 17,000 SMSF trustees who had more than 90 per cent of their assets in a single asset class and their auditors reminding them of their legal obligations in formulating an investment strategy.


As part of these communications, Smarter SMSF chief executive Aaron Dunn said the ATO made it very clear that where the trustee had not adequately considered diversification as part of the investment strategy of the fund, then they would look to impose administrative penalties.

“That penalty could be imposed at either the individual penalty level or jointly between the directors of the corporate trustee,” Mr Dunn said in a recent Smarter SMSF webinar.

This would result in a section 55 action, he explained, whereby if there were documents that were put in place that cover the investment strategy and all the elements of SIS Regulation 4.09, then failure to do so by that trustee means that where there is an aggrieved member, there is recourse for that aggrieved member to take action.  

“You might not necessarily see one member suing another member, but there may be a subsequent beneficiary claim in the future which could certainly implode if we’re thinking about blended families and the like,” Mr Dunn said.

Mr Dunn noted investment strategies are also an area that SMSF auditors are paying closer attention to following both the increased focus by the ATO and recent litigation cases against audit firms.

“We’re seeing increased requests from SMSF practitioners stating that their auditor wants more documentation or information about why the trustee has invested in a certain way, and it all comes back to this heightened level of risk,” the CEO said.

Investment strategy breaches tipped to see rise in disputes
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Miranda Brownlee

Miranda Brownlee

Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.

Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.

Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.