SMSF trustees commencing a benefit splitting arrangement for members have been advised to ensure all document obligations have been completed in the correct order, but have been warned some parts of the process required under super regulations do not align with the SMSF sector.
DBA Lawyers senior associate William Fettes noted trustees need to be aware splitting notices must follow a specific order to avoid regulatory complications.
“The non-member spouse provides a copy of the splitting orders to the trustee to start the process … disclosing some basic details about the non-member spouse who is the beneficiary of the split,” Fettes said.
“It is initiated by the non-member spouse, even though this if often done in a mutual way and can happen on the same sequence, the legislation anticipates this as a back and forth exchange of notices between the trustee and members.”
Following this step, trustees are required to give the member spouse and non-member spouse a split notice and should observe the strict time limits associated with the provision of this notice as required under Superannuation Industry (Supervision) (SIS) regulation 7A.03.
Additionally, under SIS regulation 2.36C, the trustee must also provide the non-member spouse with a notice with the details of the split and Fettes noted this section can become confusing for SMSFs.
“This regime is not tailored for SMSFs, so there are things about regulation 2.36C that do not make a lot of sense in an SMSF context,” he warned.
“The regulations mention fees and providing details about the Australian Financial Complaints Authority, but this is still a legal requirement and you have to prepare that notice in a particular way for it to make sense because [it is not] perfectly adapted to SMSFs.”
SMSF members will then decide on how to split the amount either through a new interest created in the name of the non-member spouse, transferring the split amount to a nominated fund relating to the non-member or paying a lump sum, to which the trustee must give effect.
Fettes said it was important a trustee carries out their obligations for members splitting a benefit as while the split may start under Family Law Act provisions, it will not be automatically carried out under superannuation law.
“These steps are compliance requirements, so under the SIS regulations you have to have these notices and a failure to have each notice is something that attracts 20 penalty units per contravention,” he said.
