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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 a savings plan, in that a few days dedicated to making sure it is in order for the year ahead will reap benefits over the next 12 months.
So, what are some of the things that 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. And the answers will help you review your investment strategy to make sure it is 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 allocations.
Perhaps some of your shares in a particular sector have had a very good year – for example the Australian healthcare sector was up by over 40% in 2019 – 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 down some of these holdings and relocate the funds to other sectors that may not have had such a good year.
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 members of APRA-regulated funds – but if they do not 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 that 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, there are also a number of other changes that have the potential to impact SMSFs that you may not be aware of, such as changes to non-arms-length expenditure (NALE). The ATO released a draft companion ruling last October which highlights how some of the changes to the Treasury Laws Amendment (2018 Superannuation Measures No. 1) Act 2019 could impact SMSF trustees who conduct services for their funds. Practicing accountants who also prepare the accounts for their own SMSFs may be required to charge for their services in certain situations but they also may not need to charge if they conduct these services as an SMSF trustee.
Draft Law Companion Ruling LCR 2019/D3 uses the following example:
Leonie is a trustee of an SMSF of which she is the sole member. She is a chartered accountant and registered tax agent who is employed in an accounting and tax agent business. Leonie in her capacity as trustee, prepares the accounts and annual return for the fund. She does not use the equipment or assets of her employer, nor does she lodge the annual return using her tax agent registration. As she performs these duties or services as trustee of the SMSF, she does not charge the fund for this work. The non-arm’s length expenditure provisions do not apply as the duties or services performed by Leonie are in her capacity as trustee rather than under an arrangement in which parties are dealing with one another on a non-arm’s length basis.
But the draft LCR then goes on to use an example of a real estate agent who has a property in their SMSF. In that case, if the real estate agent were managing the property and using the equipment and assets of their business (including the business’ website) in performing these services, but not charging a market rate for the service, that would constitute non-arms-length income for the fund’s tax return purposes.
5. Resolve to keep better minutes
As a trustee you will know that you need to keep minutes but for many it’s a tricky thing to keep on top of and often it may end up falling to the bottom of your to-do list. Make 2020 the year you get on top of this. Make a template tailored to your fund and members, or use our minute templates here, 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 its members. But if you add the above five resolutions to your annual list it will certainly put you on the right path to achieving the ultimate goal for your SMSF.
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