Login
ATO provides clarity on nil member balances
The ATO has outlined the approach SMSF auditors should take where a fund has a member with a nil balance.
Speaking at the SMSF Association National Conference, Super Sphere director Belinda Aisbett said there are situations SMSF auditors may come across where a member of a fund has a nil balance and has not previously made contributions to the fund.
ATO director of superannuation and employer benefits Paul Delahunty said the ATO does not consider a nil member balance in itself to be a specific compliance issue.
However, Mr Delahunty noted that a nil member balance could indicate some issues around the administration of the fund.
“One of the things [we consider] in relation to nil member balance is what has actually transpired in relation to history. We would say, well, has there been some potential mischief that’s occurred?” said Mr Delahunty, speaking at the same conference.
“Have there been any rollovers that have occurred from another fund into the SMSF and which has been used to facilitate illegal early release?”
Mr Delahunty said it’s also important that SMSF auditors consider some of the potential administration issues around whether they are a member or just a trustee.
“They may have been mistakenly added as a member, and so there may be administrative issues associated with how it’s been set up,” he explained.
He also outlined that it is the auditor’s responsibility to consider section 17A and determine whether the fund meets the definition of an SMSF.
Ms Aisbett said that in the majority of cases she sees with nil member balances, there is no mischief and that it will often be for succession reasons.
“With most funds of mine with a member with a nil balance, it’s because mum and dad getting a bit elderly, they just bring in one of the kids so that the kids are already in play if something happens and mum or dad pass away or they become impaired,” she said.
Ms Aisbett said it is important that where there’s someone who signs up as a member and has a nil balance that the auditor asks about contributions and rollovers and whether there’s a fund somewhere else.
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
I have encountered a number of funds where there are nil balance members, usually as described, when children are brought into the fund with ageing parents. The questions I ask are 1. Have the children signed the engagement letter & trustee representation letter. This ensures they are aware of their involvement. Remember, they may have liabilities for breaches. 2. Is there a nil balance member statement? 3. Is there a nil balance member report in the Annual return? If these do not exist, is the person a member, and do we have a non-member trustee breach?0- The ATO knows where every dollar from a retail or industry super fund has gone - it gets real-time reports. If the money went to an SMSF, then the ATO knows that. Very easy to generate a letter to the SMSF about 4 weeks later seeking confirmation of where the money now is. I think most Grade 10 students could write a sort program to handle that... I have my doubts about them drafting the letter itself.
Mr Delahunty could get his staff to be a bit pro-active, rather than waiting for the SMSF Auditor to report, which legally can be as late as 28 February for a new fund. That is possibly 20 months after the mischief occurred.
Some early SMSFs were set up with a non-active member to avoid having a corporate trustee.0 - From my experience, a nil balance member is in a SMSF often occurs because the person who set-up the fund has mistakenly considered that the trustee rules, whereby a single member fund is required to have 2 (individual) trustees. The exemption in s17A has not been correctly interpreted.
As for it to be a succession strategy, extra care would be required here as SMSF succession relates to a member's appointed LPR not the fund membership. Even if that LPR is also a member, that role is not interchangeable with the LPR role.
If the child is not providing administrative support to the fund (prior to loss of capacity or death), I can't see why you would have them in the SMSF.0 - A nil member balance occurs because you must have minimum of two trustees. I set smsf up primarily for myself but wife had to be a 2nd trustee. She was already in a great superfund through work so didn't put funds into the smsf. And of course a trustee has to be a member and vice versa. I don't see why nil member balance is a conversation.0
- She doesn't have to be a member to be a second trustee0
- RobP Brisbane often misses the mark0
- We don’t have mom’s in Australia we have mum’s0
- I disagree, the auditor's job is not to provide quasi advise as to why a member does not have a balance and encourage funds to be deposited. Simply to me if the deed allows it you do not query it, and you stick to your audit mandate.0
- Mum not mom.0
- Are you sure Belinda used the term "Mom"?0
Subscribe to the
BULLETIN
Get the latest news and opinions delivered to your inbox each morning
Subscribe
