Nil balance allowable, but risky

Nil balance SMSF

An SMSF can have members will a nil balance depending on the trust deed but avoiding that situation is a better compliance option.

SMSFs can allow members to have a nil balance if the trust deed permits it, but funds should avoid allowing balances to fall to that level, an SMSF legal expert has cautioned.

DBA Lawyers special counsel Bryce Figot said the ability for someone to be a member of an SMSF while holding a nil interest was dependent on the deed and the provisions included within it.

Speaking during an online briefing late last week, Figot noted the deed provided by his firm states a member did not need to have a minimum interest and anyone who had a nil or negative interest could become, or remain, a member of the fund.

“Can you have a super fund with a nil interest? Yes, it is possible and under the DBA deed you can do it, but should you try to actually use it?” he said.

He pointed to ATO guidance regarding nil balances released in July, adding: “What the ATO says in this document is although there may be good reasons why a member of your SMSF has a nil account balance, in some cases this may indicate your SMSF has not been administered correctly.

“A nil balance is a risk factor they look at which could trigger negative implications for your fund. So it is possible, but it may well flag with the ATO as being a poorly administered fund.

“I have the view that theoretically you can have a nil balance, but no one wants to be a test case, so at the very least put some amount in the fund to have a line in the sand.

“The ATO are expressly saying it could be an indication that the fund has been poorly administered and that is some fairly new material they have released, so, and this is not financial advice, have at least $1 in the fund.”

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