These included proof that they had considered “the risks of inadequate diversification within the context of their SMSF investment portfolio (for example, the risks associated with the fund’s investments in a diversified portfolio of shares is likely to be lower than that of another asset class, such as cryptocurrency)”.

The investment strategy also needed to consider “the making, holding, realising, and the likely return from their fund investments relating to their retirement objectives and expected cash flow requirements”.

In addition, trustees also needed to factor in how the liquidity of their investments would allow the fund to meet costs and pay benefits as members retired, and whether insurance should be held for one or more members, the ATO said.

It warned that penalties would apply for trustees whose auditors disclosed to the ATO that they had failed to rectify non-compliance with the diversification requirements.

In addition, the ATO recommended trustees seek assistance from a licensed adviser if they were having problems formulating a compliant strategy.

The update follows an SMSF Adviser report earlier in August that the ATO would write to over 17,000 trustees who have more than 90 per cent of their assets in a single asset class.