The accounting treatment of money exited from a fund before any member has satisfied a condition of release can lead to additional compliance issues if the ATO classifies the transaction differently to the SMSF trustees, a sector specialist has said.
Specifically, Accurium head of SMSF education Mark Ellem was referencing situations where an amount withdrawn from a fund before a condition of release is satisfied is treated as a loan and the trustees attempt to rectify the situation on this basis.
To this end, Ellem shared his experience of a situation where an incorrect drawdown was treated as a loan by the SMSF trustees, but later considered to be an instance of illegal early access of benefits by the ATO.
“In this scenario the withdrawal was treated as a loan by the trustees and guess what had happened by the time we got to audit? It had been repaid. But what happens when the ATO says: ‘That wasn’t a loan, it was illegal early access’? What’s the money coming back in treated as? A contribution,” he told delegates at the recent Accurium SMSF Compliance Day 2024.
To make matters worse, the member who put the money back into the SMSF had exhausted their contributions caps, meaning the loan repayment attracted additional compliance problems through an excess contribution notification.
Further, Knowledge Shop technical superannuation adviser Jason Hurst noted if an incorrect drawdown from an SMSF is to be considered a genuine mistake by the trustees, they must establish a believable body of evidence to support this claim.
“There can be certain situations where a drawdown might be a mistake and you might be able to reverse that, but it’s clearly not a mistake when you move money from the SMSF to your own bank account and you spend that money. That’s not a mistake,” Hurst told delegates at the Accurium event.
“A mistake would probably be relatively rare in these cases, but a mistake would be someone maybe intending to invest $50,000 somewhere and accidentally transferring the money to their other account and then noticing it and sending it back.
“Also you’d usually have other evidence indicating the member did actually intend for the money to go elsewhere.”
