ATO, Auditing, Compliance, SMSF

Confusion over access rules evident

SMSF Loans to members Auditor Contravention Reports ATO inancial assistance

The fact loans to members is the most common compliance breach appearing in auditor contravention reports shows trustees have a misunderstanding of the super rules.

A technical expert has highlighted the difficulty trustees seem to be having in understanding SMSF cash and assets are not at their disposal to be used when needed as evidenced by the fact loans to members is the most prevalent item appearing on auditor contravention reports lodged with the ATO.

“The most frequent or largest proportion of breaches reported is loans to members or the provision of financial assistance [to members, making up] 19.7 per cent of contravention reports,” Colonial First State head of technical Craig Day revealed during his presentation at the SMSF Association National Conference 2024 held in Brisbane recently.

“Why is this the most common breach? First of all I think [it’s probably due to] a misunderstanding of the rules. Also the concept of ‘this is my money’. [Trustees most likely think:] ‘It’s my money, I’ve got the school fees that need to be paid, I’ll have that $2000 at the end of the month. Why can’t I just take that [sum] out of the fund’s bank account and put it back in at the end of the month? It’s my money.’

“So there is certainly that concept [and] also financial difficulty. If you’ve got a small business and you’ve got cash-flow problems and you’ve got an SMSF bank account or assets sitting there that [can] get you out of trouble, I can imagine that would be very hard [for trustees] to resist.”

According to Day, advisers can help prevent these types of compliance breaches by knowing how to read and recognise some signs that indicate SMSF trustees might be considering accessing superannuation money illegally.

“One of the things to look for is an unexpected liquidation of fund assets,” he pointed out.

He explained a conversion of assets to cash, often combined with a situation of financial difficulty, more than likely declares the intention to use that cash for a particular purpose.

Loans to members can be considered illegal early access of super benefits and the conference saw the ATO call for practitioners to play a proactive role in the sector’s efforts to eliminate this type of behaviour.

Copyright © SMS Magazine 2024

ABN 43 564 725 109

Benchmark Media

Site design Red Cloud Digital