COVID stresses record-keeping importance

SMSF record-keeping

Accurate record-keeping is paramount when looking to avoid compliance breaches when withdrawing benefits early from an SMSF in exceptional circumstances.

The importance of accurate and up-to-date SMSF record-keeping was emphasised during the COVID-19 pandemic as it would have helped trustees avoid potential inadvertent compliance breaches when taking advantage of the government’s coronavirus financial hardship relief involving superannuation, a technical expert has said.

Accurium head of education Mark Ellem was making reference to the ability for individuals to legally withdraw $10,000 in the 2020 income year and a further $10,000 in the 2021 financial year under the COVID relief measures.

To this end, Ellem was analysing a scenario where a person in a two-member SMSF used this measure to withdraw $10,000 from the fund when their benefit balance was, for example, only $2000 and thus insufficient to cover the full relief amount.

“This [situation] highlights the approach to fund administration that if fund administration is kept up to date and trustees have access [allowing them] to view where their balances are [at], then they should have been able to quickly [confirm] that while they have approval to release the $10,000, the member only has a balance of $2000 so they can’t do that,” he explained to attendees of the latest Accurium TechHub webinar held last week.

“It also highlights the requirement for members to have a knowledge of what their balances are.”

Accurium SMSF manager Matthew Richardson pointed out the scenario would have led to an unnecessary breach of the preservation rules for the member whose super balance was used to cover the $8000 relief payment shortfall if they had not satisfied a condition of release.

“There is the question as to whether that [amount] would be a loan to the member, but you’d think there [would have been] no intention of that being a loan at the time and there would have been no documentation done to [treat the withdrawal in that manner},” Richardson noted.

“So it’ probably going to [be treated] as either providing financial assistance to a member or a breach of the preservation rules.”

He suggested a mitigation strategy in this situation would be to return the withdrawn amount as soon as possible to the fund and then contact the ATO using the early engagement and voluntary disclosure service to report the error.

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