SMSF members claiming benefits due to permanent incapacity should be aware the definition of that situation is different for a condition of release or where a tax concession can be claimed, but meeting one definition may cover both events.
MLC TechConnect senior technical services manager Julie Steed said permanent incapacity was a condition of release in circumstances agreed upon by a super fund’s trustees, according to the Superannuation Industry (Supervision) Act, but tax concessions were also available under the Income Tax Assessment Act 1997.
“In terms of the condition of release, we meet the definition if the member is suffering a permanent incapacity and the trustee of the fund is reasonably satisfied the member’s ill health makes it unlikely they will engage in gainful employment for which the member is reasonably qualified by education, training or experience,” Steed said during a recent presentation hosted by The Auditor’s Institute.
“In order to get the tax concession, the member needs to be suffering from ill health and two legally qualified medical practitioners have to certify that because of the condition they are unlikely to perform any occupation for which they are reasonably qualified by education, training or experience.”
She noted the difference between the condition of release and the tax concessions was who was satisfied the member was permanently incapacitated and this could be beneficial to SMSF trustees and members, but they need to gather and retain the correct information.
“In my experience, particularly in SMSFs, trustees tend to say if two legally qualified medical practitioners are satisfied, then as a trustee with no medical knowledge or training, I will also be reasonably satisfied that the member’s ill health is sufficient to meet the condition of release,” she said.
“So it is important to get those certificates,” she said, adding they were also essential for the audit process.
“From an audit point of view, it is not the benefit payment standards that we are looking at here.
“The issue is has the tax concession resulted in the fund’s value being mis-stated because without those certificates they are not eligible for the tax concessions that have been granted, and if the benefit has been paid, then the benefit may well have been overpaid without those certificates.
“There’s no requirement for the tax concessions to be applied, but if they are, then we must have those two legally qualified medical practitioners have their certifications on file.”
