Splitting order documentation a must

splitting order

The procedures undertaken following a court-issued splitting order must be properly documented and a failure to do so is a breach of a trustee's obligations.

It is a legal requirement to document how a court-issued splitting order is executed in the event husband and wife trustees of an SMSF divorce or separate, a legal specialist has said.

DBA Lawyers senior associate William Fettes pointed out a record of these procedures had to be established in accordance with regulation 7A.02 of the Superannuation Industry (Supervision) (SIS) Regulations.

“[Having these documents in place] is actually an operating standard, which means it is something that has to be done,” Fettes explained during DBA Lawyers’ most recent SMSF online update.

“So if you skip this step, you are actually having the trustee contravening the operating standards. It’s 20 penalty units per contravention of that so it’s something that just has to be done.”

The current fine for an administrative penalty unit is $222, meaning failing to document the implementation path of court-issued splitting orders can result in each trustee facing a liability of $4440.

According to Fettes, this compliance area has increasingly attracted the attention of auditors.

“We’re increasingly seeing auditors checking and being more aware of this [compliance] aspect,” he said.

He noted there are five different steps SMSF trustees had to take and document after receiving splitting orders from the court.

These are having the non-member spouse provide the SMSF trustee with a copy of the splitting orders together with a  notice of the split in their favour, having the SMSF trustee give each party a payment split notice to formally let the parties know the interest of the member spouse is subject to a split under the terms of the splitting order, choosing the method by which the split amount is to be treated, having the trustees give effect to the choice of the non-member spouse as to how the split amount is to be treated, and having a rollover prepared using the prescribed ATO documents where relevant after completion of the allocation to the member spouse.

“Don’t rely on all that being self-executing. You have to go through these notices and it’s a bit of a flurry of paperwork that just has to be done as part of the regulatory rules,” he advised.

During the same presentation, he told advisers any capital gains tax relief arising from a splitting situation has to be applied with consistency.

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