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The beginning of a new year is frequently the time when people begin planning for the year ahead. Many of us usually have a few days holiday, if not a few weeks, which gives us time to recharge and reflect.
A self-managed super fund (SMSF) is no different to a fitness, diet or savings plan, in that a few days dedicated to making sure it’s in top shape for the year ahead will reap benefits over the next 12 months.
So, what are some of the things you should be resolving to do for your SMSF in 2020?
1. Resolve to keep on top of your investment strategy
The beginning of the year is a good time to dust off your investment strategy and consider whether it still meets your needs.
Is it too conservative? Not conservative enough? Are more members approaching retirement and perhaps considering how their superannuation will provide them an income in the years ahead, as opposed to focusing on growth alone? What are your fund’s asset allocations across the different asset classes? Is it time these need to be rejigged, if only slightly?
These are all important questions to ask yourself and other SMSF members at least once a year. The answers will help you review your investment strategy to make sure it’s right for you.
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2. Resolve to rebalance
Once you’ve reviewed and possibly revised your investment strategy, you may need to rebalance your investments so they are in-line with your strategy’s stated asset allocations.
Perhaps some of your shares in a particular sector have had a very good year – for example, the Australian information technology sector was up by more than 46% in 2020 – and may now represent a lot more than your intended allocations in your investment strategy. If this is the case, you will need to sell some of these holdings and reallocate the funds to other sectors that may not have had such a good year. This is a good way to ensure you sell high and buy low.
Rebalancing is also something that will be easier if you keep on top of it on a regular basis. This doesn’t mean selling every time something grows in value – as the broking fees would soon add up – but keeping a monthly tally of how share price movements are affecting your asset allocations is one way of keeping on top of it.
3. Resolve to keep insurances in order
As an SMSF trustee you are required to consider the insurance requirements of the members in your SMSF. Members do not need to have insurance in their SMSF – unlike most members of APRA-regulated funds – but if they don’t have insurance, they need to explain why in their fund’s investment strategy.
This explanation can be as simple as a one-line statement (see our investment strategy templates here) but it’s also a good idea to regularly review whether or not you want to have insurance in your SMSF. If you have new members who have moved from larger funds into an SMSF, their insurance requirements and needs may be different to other members and will need to be considered separately.
4. Resolve to educate yourself on regulation changes
Are you on top of all the rules and regulations that apply to SMSFs and how they might apply to the members in your SMSF?
The transfer balance cap rules immediately come to mind if you, or your fund’s members, have large balances that have the potential to breach the $1.6 million transfer balance cap.
However, this year there are some temporary rule changes designed to ease the pain of COVID-19. These include documenting:
- Pension reductions due to COVID-19. If any members have taken advantage of the reduced pension minimums, this must be documented so the auditor can see why the normal minimum was not withdrawn in the 2019/20 and 2020/21 financial years.
- Early release of super due to COVID-19. If any members accessed some or all the $20,000 tax-free lump sum withdrawal available to members who were adversely impacted by COVID-19, the ATO will be watching. Documentation must show a loss of employment or reduction in earnings, so your fund’s auditor can verify your eligibility for the scheme. Failure to do so could result in an ATO penalty.
- Rent relief due to COVID-19. Where an SMSF landlord has provided a related party tenant a rent reduction in 2019/20 and 2020/21 due to the financial impact of COVID-19, neither the ATO nor the auditor will take compliance action. However, the rent reduction must be on an arm’s length basis.
The thing to be aware of with all these temporary measures is not just to stay within the rules but document your actions so you can be seen to be following the rules.
5. Resolve to keep better minutes
As a trustee you will know that you need to keep minutes but that doesn’t mean it’s easy. Often it can end up falling to the bottom of your to-do list. Make 2021 the year you get on top of the minutiae of minutes. Make a template tailored to your fund and its members, or use our minute templates and keep them handy for every time you make a major decision about the fund.
Of course, the most important resolution and aim is to grow your SMSF’s assets so it will meet the retirement needs of members. But if you add the above five resolutions to your annual list it will certainly put you on the right path to achieving your fund’s ultimate goal.
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