The ATO may be responding to the Covid crisis by relaxing some parameters for SMSF trustees in genuine financial distress, but it is not a free-for-all. There is a fine balance between assisting clients with genuine distress relief, while also ensuring ongoing compliance. SMSF Accountants and Advisers need clarity in their understanding of the requirements... and quality advice has never been more important. In-house Assets Breaches The ATO has addressed concerns about breaching in-house asset rules in situations where the recent downturn in the sharemarket causes the fund’s in-house assets to increase beyond 5% of the fund’s total a
ssets. The ATO says:
"If, at the end of a financial year, the level of in-house assets of an SMSF exceeds 5 per cent of a fund’s total assets, the trustees must prepare a written plan to reduce the market ratio of in-house assets to 5 per cent or below. This plan must be prepared before the end of the next year of income.
If an SMSF exceeds the 5 per cent in-house asset threshold as at 30 June 2020, a plan must be prepared and implemented on or before 30 June 2021. However, we will not undertake compliance activity if the rectification plan was unable to be executed because the market has not recovered or it was unnecessary to implement the plan as the market had recovered.
This compliance approach also applies where the SMSF exceeded the 5 per cent in-house asset threshold as at 30 June 2019 but has been unable to rectify the breach by 30 June 2020." Balancing, Timing and Contravention Reports Auditors will not need to report these sorts of in-house asset breaches for the first financial year. However, if the trustee does not implement the rectification plan and reduce the in-house asset level below 5% before the end of the following financial year, the SMSF will become non-compliant. Balancing asset portfolios can take time to enact, especially when both property and financial markets are volatile, so it's imperative that Accountants and Advisors are on top of the rules and give clients instructions and guidance in a timely manner. Quality advice and auditing more important than ever Good professional advice is most needed in times of change. Effective collaboration between Auditors, Financial Advisors and Accountants will enable clients to make the best decisions that are financially sound, tax-effective and most importantly, fully compliant. The ATO usually enforces in-house assets requirements strictly and we can expect that the ATO will implement its usual rigour in raising the bar for quality standards in the SMSF sector. Both Covid-19 and the Banking Royal Commission have put quality and integrity firmly on the agenda. For Accounting firms who want to protect their brand and firm's reputation by giving wise advice to trustees, it is important to use ATO relief appropriately and to be careful not to cross the boundary into opportunistic misuse. Clarifying with your Auditor and collaborating with Financial Advisors will realise the best results for clients. Protect your client's retirement savings and the ongoing compliance of their SMSF's with balanced, sound and appropriate advice. If you'd like more information, please contact us.