ATO, Superannuation

Disputed member exits an issue

member exits SMSF

Protracted member exits are beginning to be treated more severely by the ATO as it becomes a growing issue in the SMSF industry.

The ATO is beginning to take a tougher approach in circumstances where an SMSF may effectively be non-complying due to a situation where the process of removing a member has led to protracted exits, a superannuation lawyer has said.

“[There are] many funds we’re dealing with at this time that are non-complying and non-complying in big ways. [For example] the house in the fund is now [one member’s] home, one spouse has taken up accommodation [in a property] in the fund, or they’ve ripped money out [of the fund],” DBA Lawyers director Daniel Butler told delegates at last week’s Self-managed Independent Superannuation Funds Association SMSF Professionals Half Day Seminar.

“The ATO, to a certain extent, are somewhat accommodating here, however, they are getting less accommodating. So be very careful [in these situations].”

According to Butler, circumstances where a member exits may lead to an SMSF becoming non-complying generally see a member disagreement leading to a refusal to sign official documents, such as financial statements and annual returns, resulting in non-lodgement.

“[These are] all the warning signs where the ATO are going to come down [on the fund] big time,” he noted.

“The admin penalties alone will hit [the fund] up badly and if [the SMSF has] individual trustees, you will be doubling your penalties there.”

He revealed a measure to mitigate this type of risk is to include conditional membership clauses in the SMSF trust deed. This involves a process where an individual agrees to how they can be exited from the fund at the moment they are admitted as a member of the fund.

“It’s not without risk and it’s not a guarantee [a complicated exit won’t occur],” he said.

For SMSFs with a corporate trustee, he said the constitution of the company has to be appropriately worded to guard against these situations to stipulate who has a casting vote to break any deadlock when deciding to remove a member from the fund.

Copyright © SMS Magazine 2024

ABN 43 564 725 109

Benchmark Media

Site design Red Cloud Digital