Fluctuating asset values create in-house asset headaches for SMSF trustees

Michael D’Ascenzo

While the number of self-managed superannuation funds (SMSFs) is on the rise, the Commissioner of Taxation, Michael D’Ascenzo, believes many SMSF trustees remain unaware of important rules and allowances relating to their funds, particularly during the current financial crisis.

Speaking at the Self-Managed Super Fund Professionals’ Association of Australia (SPAA) conference in Adelaide yesterday, D’Ascenzo said there are a number of measures SMSF trustees can take to protect their funds in a market “buffeted by falling asset prices and negative returns”.

D’Ascenzo said the industry has raised concerns with the ATO that there may be potential problems complying with the in-house assets rules in a market where valuations are fluctuating widely. There are concerns the changing market values will cause some trustees to breach the 5 per cent rule that applies to single assets in a SMSF, D’Ascenzo said.

“Whether this is a problem or not will depend on year-end values,” D’Ascenzo said.

The commissioner said where problems are revealed, trustees will need to have a plan in place to “address the proportion of in-house assets held and reduce it to an acceptable level within 12 months of the relevant year”.

“If values recover in the following year there may be no need to sell,” he said.

D’Ascenzo said if values don’t recover the ATO would assess each case on its merits.

“Our disposition would be to consider such cases sympathetically, particularly where the situation is beyond the trustee’s control and remedial action is on course,” D’Ascenzo.

D’Ascenzo said new registrations of SMSFs have been “growing strongly, and spiking since September”. Between September 2008 and January 2009 the number of new SMSFs grew by 19 per cent compared to the same period the year before, D’Ascenzo said. He did add, however, that February registrations have softened, and the picture around funds that have been wound up is not as clear, with many funds still due to file their tax returns later this year.

The commissioner said there are now more than 400,000 SMSFs with funds under management totalling $326 billion.

The Australian Prudential Regulation Authority’s latest figures show that self-managed funds hold more than 30 per cent of total superannuation assets, more than industry or retail funds (calculated separately).

The ATO also announced yesterday a new four-part publication series designed to introduce trustees and those thinking about establishing a SMSF to the relevant issues. These are available on the ATO website.