New rules arising from the Cooper Review’s Stronger Super reforms take effect from 7 August 2012 that all SMSF trustees must be aware of.
The new amendments to the SIS regulations to improve the governance of self-managed super funds and how they manage and monitor their investments are:
1. Trustees are to consider insurance for their members as part of the fund's investment strategy.
This ensures that trustee-members consider their personal circumstances with respect to the need for different types of insurance cover, such as life insurance, as risk management is one of the key responsibilities of trustee. Note that trustees are not being required to take out insurance but must now document their policy on insurance and review it regularly. Previously the investment strategy was required to address risk, but consideration of insurance was not a specific requirement.
2. Trustees are required to review the Investment Strategy regularly.
In their review trustees must take account of any changes in the circumstances of the fund and its members, but the regulations don't state what ''regularly'' means as it will depend on how the fund manages its investments.
Previously, the requirement was to review the investment strategy “at least once a year” so it is clear that investment strategy reviews must now be more frequent than once a year, and evidenced in trustee minutes held during the year.
3. SMSF assets to be valued at market value for reporting purposes from 2012-2013.
Market value is the amount that a willing buyer of an asset could reasonably be expected to pay to acquire the asset from a willing seller if they dealt with each other at arm’s length, the sale occurred after proper marketing of the assets, and the parties acted knowledgably and prudentially in relation to the sale.
Previously, funds not paying a pension or without any in-house assets could choose between historical cost, being the price at which assets were bought, or market value.
4. Assets of the SMSF must be kept separate from those held by a trustee personally and by a standard employer-sponsor or an associate of a standard employer sponsor.
While this is not a new requirement, the new regulations give the ATO the power to enforce this rule as mixing fund assets with those of associated parties is one of the most common super rule contraventions. This is one of the reasons we usually advise new SMSFs to use a corporate trustee rather than individual trustees.
For further information you might find the attached flyer helpful. Please click Obligations & Responsibilities for SMSF Trustees Flyer to download the flyer.
If you need help or more information on how these new rules might affect your fund please don’t hesitate to contact your usual accountant or our in-house SMSF Specialist Advisor, Michael Rees-Evans.
Important note: this information is of a general nature and has been prepared without taking account of anyone’s financial situation, objectives or needs. Before making any investment decisions based on the contents you should obtain professional advice.