Where this occurs, Ms Dawson said it is important trustees take steps to fix the situation.

If the policy is not in the correct name, the starting point is to check whether the insurance policy was correctly issued when the cover was applied for, she said.

“If the application for insurance cover was completed in the name of the fund trustee on behalf of the fund, but the policy documentation was issued in error, approach the adviser who arranged the policy and ask they arrange with the insurer for the policy documentation to be corrected,” she stated.

Otherwise, if the policy is owned by someone other than the SMSF, the trustee should stop paying premiums on the policy.”

If the policy is owned by the member or a relative such as their spouse, it’s not as simple as transferring the policy into the fund’s name, she cautioned.

“The fund is not permitted to acquire the policy from the member as funds are generally prohibited from acquiring assets from related parties other than listed securities and business real property,” she explained.

“Instead, the member of the fund will need to reimburse the trustee for the insurance premiums the fund has incorrectly paid.”

Ms Dawson said this will need to be reflected in the in the fund’s financial statements by taking up a debtor for the total premiums to be refunded and requesting the member repay the fund as soon as possible.

“Similarly, an amendment to the fund’s annual returns will be required as the fund is not permitted to claim a tax deduction for the premiums on a policy it does not own,” she said.

The auditor of the SMSF, she said, should raise the above issues with the trustees in a management letter and may require proof of the reimbursement of the premiums, such as a fund bank statement showing the deposit from the member.

“Qualification of the fund’s audit report may also be appropriate (subject to materiality) since financial assistance has been provided to a member and separation of the fund’s assets from that of the member has not been maintained,” she stated.

“Similarly, an auditor contravention report may be necessary if the relevant reporting criteria have been met as sections concerning financial assistance and separation of fund assets are reportable sections.”