SMSF practitioners concerned about the retirement status of a client seeking access to their superannuation are obligated to ensure they have legitimately ceased work and not doing so could result in legal action, Heffron head of education and content Lyn Formica has warned.
She noted some employers may pressure accountants, tax agents, financial advisers or auditors to state a client who has not reached retirement age has in fact retired so they can start a pension and access tax-exempt income from their fund.
“What do I do if I’m doubtful they have met the retirement definition, particularly if other people in my workplace are saying ‘don’t worry about it, the client is making the declaration in terms of retirement. It’s not going to come down to you’,” Formica asked during a webinar last month.
She pointed out while there are two definitions of retirement – where they have reached preservation age, ceased a gainful employment arrangement at some point and don’t plan to work again, or had a termination of employment after age 60 – a client only needed to meet one definition.
“If you are still worried they are not going to meet a definition of retirement, perhaps they haven’t had a cessation of employment or they are going to stop being paid but continuing to do all the things they normally would have done, then what do you do?” Formica added.
“Don’t forget your ethical standards. If you are a member of an industry association, you would be subject to codes of conduct.
“The words may be slightly different in those codes of conduct but most of them will talk about the fact you need to make sure your clients are complying with the law and not circumventing the law, or certainly that your advice doesn’t try to circumvent the law.
“If you are a tax agent lodging a return for a fund claiming exempt current pension income (ECPI), because it’s a retirement phase pension, but you know they have not met that retirement definition, then you may be making a false and misleading statement to the ATO as well as the trustee of the fund.
“Don’t forget the Superannuation Industry (Supervision) covenants where trustees need to act honestly in all matters concerning the fund and remember there are other members of the fund who could face detriment, and they could sue any person who’s been involved in the breach.”
