Administration, Regulation

Balance tops legal permission

member balance release condition

The obligation to determine if there are sufficient funds to make a member payment is the most important consideration for SMSF trustees.

SMSF trustees releasing funds to a member have an obligation to ensure a sufficient asset balance exists to cover the payment and not take the course of action simply because a condition of release has been met.

Accurium head of education Mark Ellem said it was essential for trustees to know the balance of a member is sufficient when releasing a benefit as failing to do so could open them up to compliance action from the ATO.

Speaking during a recent live question and answer session, Ellem addressed the case of an SMSF member withdrawing $10,000 under the COVID-19 related early release of superannuation scheme despite having a balance below $10,000.

“The trustees have got a duty to ensure that prior to making a benefit payment that they can do so,” Ellem explained.

“If a member requests a benefit payment, and that is what this is – a benefit payment, the trustees have to consider can I pay it?” he added.

“Does the trust deed allow me to pay this benefit? If it does – good, but does the law allow me to pay this benefit?

“[Further] if it does, [it must be determined whether] are there any [other] restrictions. In this case, [there are] since it is a COVID temporary access so it will be subject to the authority to release the amount of no more than the $10,000. But [we need to also know if] the member has enough benefits in order for me to pay it.”

Ellem noted this consideration was similar to a trustee allowing other forms of benefit payments or the commencement of a pension.

“If the member was retired and they requested a lump sum payment of $200,000 or requested to commence a pension, the trustee will need to know the member’s balance,” he pointed out.”

In a situation where a payout is made to a member with an insufficient balance, and the fund has more than one member, effectively the non-recipient’s assets have been used to execute the transaction.

“The auditor of the fund will report that as a breach in that the other member’s benefits have been released without their approval, and the best thing to do is have the excess amount refunded.

“The ATO could take action against the trustees for not having proper processes in place to ensure the member’s benefits is not overpaid.

“This is a great reason why progressive processing of SMSF transactions is a really good idea to keep track of balances but so is ensuring you go through that checklist to make sure can you pay the benefit.”

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