Trustees diagnosed with a terminal illness have been warned that transferring their superannuation entitlements to another fund could result in additional tax liabilities and potential breaches of their contribution caps if not managed correctly.
Knowledge Shop technical superannuation adviser Jason Hurst noted a rollover could be processed in such situations, but it must be completed before a trustee applies to access their benefits on the basis of a terminal medical condition of release and before the certification process of their illness has started.
“A terminal medical condition of release amount cannot be rolled over while under the certification period. Once a trustee is satisfied that a terminal medical condition of release has been met, we can’t roll over those funds, they need to be taken out or left where they are,” Hurst explained during an Accurium technical briefing held today.
“If we do try to roll over those funds, that can cause problems. Fund A would send the amounts to Fund B as a cash transfer and there could be contribution cap issues, depending on the size of it.
“Be very careful with rollovers. If someone did want to roll over their fund for whatever reason, they should do that before they go through the terminal medical condition of release process.”
He specified the ATO would view monies transferred to another fund in these circumstances as a personal contribution, which could impact a trustee’s concessional or non-concessional cap.
Additionally, the regulator would apply a higher tax rate to the rollover and treat it as a taxable benefit.
Hurst added the requirement to obtain medical reports confirming a trustee’s terminal illness was still in place and could further complicate the rollover process.
“For a trustee to release funds under the terminal medical condition, we need two registered medical practitioners to certify that the person has less than 24 months to live. At least one of those professionals needs to be a specialist in the field of the injury,” he said.
“Some years back, [the time to live requirement] was 12 months, but it did go to 24 months in 2015.”
To that end, he strongly urged trustees diagnosed with a terminal illness to seek financial or legal advice before making any significant actions regarding their superannuation savings.
