Is the Sophisticated Investor Test Still Fit for Purpose?

The Government has recently announced that Treasury would be undertaking a review of the regulatory framework for managed investment schemes to ensure they:

• Are fit for purpose,

• Identify potential gaps, and

• Consider what enhancements can be made to reduce undue financial risk for investors

The main recommendation put forward by the Australian Security and Investment Commission (ASIC) is an increase to the ‘Individual Wealth Test’ thresholds to become a Sophisticated Investor.

 

What could this mean for you?

As it stands currently, the criteria to become a Sophisticated Investor requires your accountant to certify that you meet the following requirements:

• Gross income of $250,000 or more per year in each of the previous two years, or

• Net assets of at least $2.5 million

Under the proposed ASIC recommendations, these thresholds would increase to:

• Gross income of $450,000 or more per year in each of the previous two years, or

• Net assets of at least $4.5 million

The changes are said to account for more than 20 years of inflation, and ASIC takes it one step further by recommending ongoing annual reviews.

 

So why are the current thresholds a concern?

In the last 20 years, there has been a significant increase in property values. This means that more people will be able to pass the net assets threshold to become a Sophisticated Investor. These newly minted Sophisticated Investors won’t necessarily have the knowledge or experience to be investing in higher risk investments.

 

Does this mean that if you are currently classed as a Sophisticated Investor, you no longer qualify?

Thankfully, if the thresholds are increased, the Financial Services Council has recommended there be a transition period and grandfathering for existing clients to ensure there are no adverse tax consequences for these investors. However, the upcoming changes are worth keeping top of mind next time you get in touch to request a Sophisticated Investor Certificate of your own.

 

Please call or click to discuss with a Macro Group team member if you would like further information.

The Macro Group Team

 

Date: 22/05/2024

The Macro Group Limited AFSL:485843 Tax Agent Number 24 76 5236.

The information in this article  contains general information only. We have not taken into consideration any of your personal objectives, financial situation or needs. Before taking any action, you should consider whether the general advice contained in this communication is appropriate to you having regard to your circumstances and needs, and seek appropriate professional advice if you think you need it. We recommend that you consult a licensed or authorised financial adviser if you require financial advice that takes into account your personal circumstances.