A technical specialist has stressed to practitioners there is no convenient remedy or fix should SMSF trustees be found to have perpetrated illegal early access to their retirement savings benefits.
“Auditors, please stop telling clients to repay [amounts drawn down by members that constitute] illegal early access [to benefits]. They can’t fix it. It’s a breach, there are consequences for them personally and putting the [money involved] back [into the SMSF] will not fix it,” Heffron head of SMSF technical and education Lyn Formica told delegates at the Heffron Super Intensive Day 2022 held in Sydney recently.
Formica pointed out should the SMSF member in question decide to put the money that was accessed illegally back into the fund, it will not be treated as rectification of a benefit payment problem.
“You can’t reverse it out by repaying the money to the fund. [If] you put [the] money back into the fund, that’s going to be a contribution,” she noted.
She took the opportunity to emphasise the serious nature of illegal early access of benefits and the consequences it can have for the individuals involved.
“[The illegally accessed amount] is taxed as ordinary assessable income of [the member] at their marginal tax rate, even if there happens to have been some tax-free component in there,” she said.
“[Also] we’ve got the potential for administrative penalties on the trustee, but I’m probably more worried about disqualification of the trustee.
“Illegal early access is a key driver for disqualification of someone from being a trustee [of an SMSF]. Why [does the ATO] disqualify you? Because if it disqualifies you as a trustee, you can’t have a self-managed superannuation fund anymore.
“You’ll have to resign and move your benefits out of that particular superannuation fund.”
The regulator found instances of illegal early access of benefits to be on the rise in 2021.
