SMSF trustees who have wound up a fund need to be certain there are no outstanding payments that will be received by members as there are limited options to redirect them, an SMSF technical expert has noted.
Heffron senior SMSF technical specialist Annie Dawson said the type, scale and timing of a payment to a member of a fund that has been wound up will dictate how the trustee can redirect it to them.
“What happens if you’ve got a member winding up their fund in June 2024 and going to lodge the final return in August, and while organising the final outgoing payment they receive a $500 government co-contribution or a low-income super tax offset into the fund in July 2024?” Dawson said during a recent briefing for SMSF practitioners.
“You’ve got a couple of options and the first is getting the trustee to check whether or not the member is entitled to this payment because if they are, we can give new instructions to the ATO which says: ‘We’re not taking this. Don’t pay us, pay the member instead.’
“However, we still only have a limited opportunity here because the only way we can get a payment to go direct to the member is if they are 65 or retired and no longer have an accumulation account in the fund, and it has to be a recent thing as well as there are 35 days from receipt of payment to send it back to the ATO.”
She added the trustee returning the payment would clear the transaction out of the SMSF’s account and the member would then have to apply for the payment to be made directly from the ATO, but could also have it sent to another superannuation fund.
“If the member didn’t meet those conditions, but the fund met the timeframes, we can still say to the ATO: ‘We’re not accepting this for the member, but they have moved funds and you can send the money there,’” she said.
However, this would be difficult to do with some types of incoming payments, which due to their nature or size could halt the wind-up process.
“Where it gets a bit tricky is when we get other types of contributions that are coming in, like employer contributions,” Dawson said.
“In the past, we’ve found the best way is to give as much time as possible for people to realise that they still have to update payroll systems and so on.
“Otherwise, you may want to chat to your auditor to see their view on would they accept the SMSF is still wound up and should we return the contribution or, if it’s a particularly large contribution, it might be that your fund actually hasn’t been wound up.”
