SMSF advisers who view a loan to a member as less serious than the illegal early access of benefits and use it to allow benefits to leave the super system are operating under a false perception which could lead to serious penalties for trustee clients, a technical specialist has said.
Smarter SMSF technical and education manager Tim Miller noted the ATO has taken the view financial assistance via loans is connected to illegal early access and was concerned about the increase in the number of contraventions related to both being reported to it in the last year.
Speaking during a presentation hosted by The Auditors Institute he added the ATO was also concerned about the role of advisers in telling clients to treat illegal early access as a loan as opposed to a benefit payment.
“Industry wise, there is a perception that a loan to a member is less bad than a withdrawal from superannuation but the ATO’s position is that is total rubbish,” Miller said.
“Nothing says that more than the administrative penalties that apply.
“So a breach of the operating standards in regards to benefit payment rules has a penalty of $6500 per breach but a breach of Section 65 [of the Superannuation Industry (Supervision) Act that restricts the fund from lending to members or providing financial assistance] is $19,800 per breach.”
“The ATO is saying, from a regulatory position, if you’ve taken your money out illegally you’re going to be taxed at marginal tax rates from an assessable income point of view and you’ve got these administrative penalties that are likely to be imposed as well.”
According to Miller loans being used to mask illegal early access are often badly structured and, in turn, an indicator of poor practices from the trustee and possibly their adviser.
“If, as a starter, you haven’t got documents in place for the commerciality of the loan, that is a red flag,” he said.
“Where these loans are not structured properly there is the likelihood of significant penalties, particularly where there are two individual trustees who are looking at a penalty of close to $20,000 each and facing the scenario of where that money going to come from.
“From an educator point of view, I’ve always started off saying there’s a simple number to remember in terms of the amount of money, the amount of assistance that can be utilised from a super fund, and that’s zero.”
