A senior adviser has urged auditors to closely examine situations where a fund member performs multiple rollovers between an SMSF and a retail fund solely to optimise tax concessions on total and permanent disability (TPD) benefits.
“The mischief with TPD benefits that we see from time to time [is] members who have rolled over [between a retail fund and an SMSF] more than once to obtain a [tax] uplift and dilute the taxable component of the benefit,” Fitzpatricks Private Wealth head of strategic advice Colin Lewis told attendees of a webinar hosted by The Auditors Institute yesterday.
“[For example], where a member who’s become disabled in their SMSF wishes to commence an income stream from the fund. They’re running an SMSF [and] they want an income stream, but they want the tax-free uplift.
“They can’t apply the tax-free uplift in the fund that they’re taking the income stream from. So what they do is that they roll over to a public offer fund to obtain the tax-free uplift and then roll back to the SMSF to commence the account-based pension to get the 15 per cent offset.
“The problem arises where the trustee of your public offer fund has treated the rollback as a disability superannuation benefit and has given a further tax-free uplift. They’re double-dipping. In other words, they’re getting the tax-free uplift twice, plus the 50 per cent tax offset on their income stream.”
Lewis clarified auditors are unlikely to encounter any compliance issues if a rollover has occurred just once as this aligns with standard industry practices.
“There is no problem where the trustee of the public fund just transfers the money back into the SMSF. They’re not treating it as a disability super benefit and there’s no further tax-free uplift. It’s only where they’re getting multiple tax-free uplifts,” he said.
Additionally, he also took the opportunity to remind practitioners of the importance of ensuring any medical documentation regarding a TPD event was up to date.
“Be careful of use-by dates on medical certificates because you can’t use something that’s five years old. They need to be current,” he said.
“Medical certifications, when you’re dealing in the public offer fund space, require new certifications when they’re more than two or three years old. Anything older than that is ancient history and requires the trustee to receive new documentation from the member.”
