ATO, Documentation

Nil balance may indicate non-compliance

SMSF nil balance

The ATO has advised that SMSFs with a nil account balance on 30 June should reflect on the fund’s management as this may be a sign of non-compliance.

The ATO has warned SMSFs with a nil account balance on 30 June that this may be indicative of non-compliance issues regarding the fund’s administration and trustees should ensure all procedures have been executed accurately.

In a website update, the ATO has reminded SMSFs they cannot lodge an annual return if the fund has no assets or no closing member balances, unless it occurs in the income year in which the fund has been wound up.

“Even where there are genuine reasons for a nil account balance, a member who is also a trustee (or director of a corporate trustee) of the SMSF is still responsible for running the fund and making sure the super and tax laws are complied with,” the regulator said.

It said acceptable reasons for an SMSF to have a nil balance are that the fund was recently established or a member was added to the fund just prior to the end of the financial year.

Newly established funds were, however, advised to ensure assets have been set aside for members’ benefits and at least one member must show an account balance of more than nil in the fund’s first year of operation.

“Even if a nominal amount is used to establish the fund until a rollover, transfer or contribution is made, the amount is regarded as a contribution and needs to be allocated to a member,” the ATO said.

“Therefore, there should always be at least one member showing an account balance of greater than zero in the fund’s first year of operation (and later income years).

“If a member has a nil account balance, and there are no contributions or rollovers recorded for the member, particularly over several years, this may indicate the fund has not been set up and structured correctly. The fund may not meet the requirements to be an SMSF under the super laws.”

It added a nil balance, following a rollover from another superannuation fund, may indicate an illegal early release of super.

Conversely, a limited recourse borrowing arrangement could result in a nil balance provided the arrangement complied with superannuation laws and the loan balance exceeded the asset’s value due to depreciation of the asset.

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