The ATO has not relaxed its view on how long it should take to pay a death benefit from an SMSF and trustees are still required to act within a reasonable timeframe unless mitigating circumstances occur, two technical experts have stated.
Heffron head of education and content Lyn Formica said the alteration of guidance by the ATO, which removed references to a six-month timeframe for paying death benefits, is not a shift to an open-ended period in which to take action.
“We have seen commentary about the fact the ATO has gotten rid of the six-month rule and how that has come about is because it doesn’t appear on the ATO’s web guidance anymore,” Formica said during a practitioner clinic today.
“It never really did. It was a general rule of thumb. There was never a hard-and-fast rule that you have to pay out a benefit within six months. It was just that the ATO thought, in SMSF land, that six months is about the right time.”
Heffron SMSF specialist Sean Johnston added superannuation law never contained a specific timeframe and used the term ‘as soon as practicable’ for the payment of a death benefit, except in extenuating circumstances, which did not cover issues related to the sale of an asset.
“Mitigating factors do not relate to things like disposal of an asset, but because of things that are outside the control of the fund,” Johnston said.
“For example, you may not have got probate. I had a fund with a man whose death was subject to an inquest. We didn’t get a date of death for about 18 months.
“It might be that you have to seek tax advice or you have to go out and find the beneficiaries.
“Usually selling fund assets is not something that would be considered a reasonable cause to delay beyond six months and there are two reasons for that.
“In most cases you can transfer them in specie as long as the deed allows and one of the things required in the investment strategy is to make sure you have sufficient liquidity of assets to facilitate the payment of benefits.”
