06 Sep 2019 Very disappointed with ATO and SMSF picking on investment strategies diversification
MEMBER 233 writes:
My client received a letter from Big Brother ATO for his superfund while overseas and was in tears and questioned whether his investment in a borrowed property using LRBA complies because of the wording and diversification in the investment strategy.
The facts: He has an SMSF, more than 15% in cash and the rest in LRBA property asset. However, he still received the letter. The letter basically states that if your fund has 90% in a class of asset, the auditor has to review the investment strategy for compliance with diversification. This implies that the fund was in breach and penalties of $4,200 apply. The letter had a ‘Do not pass go! Go straight to jail!’ tone in it. The letter was sent to the trustee’s/member’s personal address.
My gripe is that these clients are hardworking individuals who haven’t received a cent in any government support, so for the ATO to send a letter to the member’s personal address that they will be fined for non-compliance is absolutely heartbreaking. Please ATO remove the letter. It already has, and will, cause extreme anxiety. I sort of understand a warning letter but your wording was harsh.
My gripe is this: Will you dear ATO dare send that same letter to the million or so SMSFs that have 100% in cash and no other item?
At university, I learnt that diversification means spread across many assets. How does 100% cash warrant no letter while someone on a LRBA warrants a ‘you better check your non-compliance’ letter that has people in tears.
While yes cash is liquid, it is technically not meeting diversification the same as property 100% is not or shares 100% is not or managed funds 100% is not either. So send letters to the lot I dare you to, please do.
Isn’t the beauty of an SMSF that one can invest 100% in shares or 100% in property if they consider that is appropriate. If diversification while considered in an investment strategy is deemed appropriate because the age of the member, or that they are not in pension phase etc? Then why send a letter to members’ personal addresses that worries them?
So then the cynic in me believes that there is political pressure or some ATO green/left fielded agenda to pick on people with LRBA arrangements or property. First the Government does it via ASIC; now none of the big 4 banks issue the borrowing loans anymore – they are also included in the pension caps (ie new LRBA loan repayments) and this 10% ASIC rule now seems to have floated into the ATO, namely LRBA arrangements.
Are funds with 100% shares also going to be sent letters? What about funds just with term deposits and cash, the million or so of them. Can’t you consult with us before you send the letter to the public so we may say that the wording is deemed to be appropriate or that it should be sent to the auditors only and not the members/trustees?
Dear Tax Institute, with your next meeting with the ATO please get the person(s) responsible for the letter removed. Please ask the ATO for an apology letter to be sent out. If not, then ATO please send them out to everyone – cash, shares, let’s go for it.
To Member 194 (TaxVine 28, 26 July) who doesn’t like gripes please don’t read and switch off. This is the only forum where our issues are looked at, the client was distressed while overseas and thinks that he is non-compliant. Thanks TaxVine and fellow Viners… glass of red tonight for you all. ATO, not very smart one on this topic just to let you know.
However on a positive note (yes Member 194), I must comment that the portal (old one) and generally new one are brilliant at the moment, also I agree with Member 228 last week that the new portal should have information on a deceased client. I It’s hard enough to get information when a person is alive sometimes, yet alone when you are dealing with grieving relatives. Put it back up please – I don’t care about the science of why it should be removed, I care about the practicalities of lodging the last tax return (normally) of a human being.