The three-day requirement for an SMSF to action a rollover under the SuperStream requirements may be a key factor in deciding whether to set up a family SMSF with up to six members, according to a legal expert.
DBA Lawyers special counsel Bryce Figot said the possibility of disputes and estrangement between parents and children in an SMSF was already a consideration for funds adding members under the six-member rules, but the short rollover timeframes under SuperStream may cause compliance breaches.
Speaking during a recent webinar, Figot gave the example of an SMSF held by a married couple adding two adult children into the fund so the latter could contribute $200,000, thus allowing the fund to engage in a limited recourse borrowing arrangement to buy business real property.
“How could that one day prove problematic? Well, what if there’s a fight or an estrangement in the SMSF?” he said.
“Bear in mind if a specific member, such as a child with even a small balance, requests a rollover, the SMSF has three business days to action that request.”
He pointed to ATO guidance released in early September regarding SuperStream rollovers and SMSF auditor obligations that states the trustees of transferring funds must ensure a rollover occurs no later than three business days after all the information needed to process the request is received.
“If a disgruntled member of an SMSF fills out a standard form, you will have to make that transfer within three business days. If the fund is illiquid, too bad,” he said.
“If a trustee fails to comply, that’s a contravention of the payment standards and if the auditor identifies non-compliance with those rules, that gives rise to a contravention of Superannuation Industry (Supervision) regulation 6.17 and may lead to an audit contravention report.
“This announcement from the ATO is new, but it solidifies my reservations about putting kids into SMSFs.
“If you want to buy a lumpy, illiquid asset and have to pool super together to buy it, that can be fine, but then if there is a falling out, you might have this sword of Damocles hanging over your head.”
