An SMSF can include members with a nil-balance as long as the intention of that member to contribute to the fund is a realistic possibility, an education specialist has said.
“I’ve always taken an element of comfort that if you have a nil-balance member because there is an intention to contribute or to commence a pension, then that’s not such an issue,” SuperGuardian education manager Tim Miller told attendees of a webinar he hosted today.
“But if you’ve got someone that joins a fund on day one and calls themselves a member, and for the next 30 years doesn’t have any money, then I would consider that to be a little bit more dubious.”
According to Miller, the situation would become even more questionable if the fund had more than one member with a nil balance and only one member with assets against their name.
“I think there is scope to say it’s okay if you’ve got one [nil-balance member], but the broader you make it and the more family members you bring in with zero [balances] I think you’re pushing boundaries.”
He warned trustees who have included nil-balance adult members in their SMSF to be aware of the precarious nature of the situation.
“I always say to people be prepared for that person where someone might ask if that person is a genuine member [of the fund],” he said.
To this end, he predicted a greater focus regarding these situations might occur in the near future if it has not already begun.
“I’ve said it for a long time now, and maybe one day it will come true, that I expect the ATO will do a review of funds versus membership and actually ask some questions [about this issue]. Maybe they do that and I just haven’t seen it,” he said.