A sector specialist has warned advisers against opting to offset entitlements from a family split where each member of an SMSF must apportion some of their benefits to the other individual involved.
“If I do that, I’m not necessarily factoring in preservation and the tax components. The sections around family law that are built into the SIS (Superannuation Industry (Supervision)) [Regulations] tell us the preservation components need to be divided proportionately,” Accurium senior SMSF educator Anthony Cullen told attendees of a technical webinar held last week.
To this end, Cullen noted if the benefits of an SMSF member involved in a family split are all categorised as unrestricted non-preserved, this treatment will continue when the divided monies are allocated to the other individual involved. This is regardless of whether the recipient of the unrestricted non-preserved benefits has met a condition of release themselves.
“And then the tax law tells us whenever there’s a payment from [a superannuation] interest, we’ve got to apply the proportionate method, so we’ve got to factor in the tax-free and taxable components,” he explained.
As such, he pointed out if a family split means one person is entitled to a payment of $500,000, but also must pay out $250,000 to the other party involved, the execution of the order cannot be completed with one net transfer of $250,000.
“I have seen people [take that shortcut]. That’s why I’m raising it. It’s not like [you can say] ‘oh that never happens, Anthony’ because it does,” he said.
He reiterated a convenient netting off of opposing split payments will result in a different outcome for individuals where they may be disadvantaged.
“So don’t take shortcuts, follow the [splitting] order as it occurs. There is a reason why the court order or agreement has been drafted in the way it has,” he concluded.
