The ATO has revealed it is seeing more incidences of illegal early access of superannuation benefits being treated as loans to members to lessen the seriousness of the compliance breach the SMSF trustees have committed.
“We are seeing more and more instances of payments being made to members which are being dressed up as a loan for the purpose of reporting. Now the obvious intent of practitioners or trustees and members in doing so is to avoid the payment being seen as a superannuation benefit paid to a member where the member hasn’t met a condition of release,” ATO acting deputy commissioner Paul Delahunty told attendees of a webinar held by The Auditors Institute today.
However, Delahunty warned the audience not to be fooled by the notion this approach will be produce a more favourable outcome for the SMSF members in question.
“I think there is a little bit of a misconception there as to how the ATO views section 65 [of the Superannuation Industry (Supervision) Act, which deals with lending to members]. So if a fund loans money to a member or their relatives, it is a breach of section 65 and the ATO views that in itself as a serious contravention,” he noted.
“There is another important aspect here that we can’t recreate transactions in terms of the actual substance of what’s occurred [regarding] the fund’s activities and transactions.”
He took the opportunity to point out elements that must be present for an amount exited from an SMSF to be considered as a loan.
“[There must be] a formal loan agreement, specific terms for [the loan] period and interest [charged], and details on the security which may be offered as well as part of that loan arrangement,” he said.
“Observances can be made as well as to what’s actually happened in relation to the payment of principal and interest in line with that purported loan arrangement once money has left the fund.
“So dressing up illegal early access as a loan arrangement is something we’re bringing a strong focus to and to try and pass it off as a more legitimate type of loan arrangement is not appropriate behaviour.”
