A superannuation lawyer has warned practitioners to properly analyse the nature of a troublesome SMSF action so as to avoid the unnecessary reporting of a compliance breach.
Specifically, Bobbin Lawyers consultant lawyer Peter Bobbin was referring to situations where money drawn from an SMSF bank account may be classified as a loan to a member, and in turn a compliance breach, by outside parties, but which are actually entirely different in nature.
“Is an overdrawn credit account a borrowing or not? I had a client [who had two different SMSF bank accounts and] they just forgot to [transfer] money from one account into the SMSF cheque account and insurance premiums were [being deducted from that cheque account] on a monthly basis and the bank just allowed it to go through,” Bobbin told attendees of the SMSF Association Technical Summit 2024 recently held in Sydney.
“But the terms of the cheque account were that it was just a cheque account – it didn’t have an overdraft facility. I don’t know about you, but that to me is not a borrowing, it’s an overdrawn account.
“I’m actually saying that’s not a borrowing. [In situations like this] you’ve got to have a look at the bank account details, the circumstances of it, the terms pertaining to the account and how it arose.
“You then have a [situation concerning an] automatic debit and not a borrowing. That’s not a loan.”
According to Bobbin, trustees and practitioners should not look toward accounting standards as a guide to how to manage situations like these.
“What the accounting standards fundamentally fail to look for is what the truth is. The accounting standards are looking to [allow you to] put a square peg in a square hole and a round peg [in a round hole],” he said.
“So I want you to ignore the accounting standards.”
