accelr8, Author at Practical Systems Super

Lesser known change, and an unfortunate delay, leave their mark

Jul 29,2020 Comments Off

There were several important bills passed during the June 2020 parliamentary sitting, none more so than the bill that provides a much needed 12 months extension for financial advisers to pass the FASEA exam.

One bill, the Treasury Laws Amendment (registries modernisation and other measures) Bill 2019, which passed both houses of parliament on 12 June 2020 without much attention, contains a new initiative which will impact SMSFs with a corporate trustee.

This new initiative will require all directors, including the directors of a corporate trustee that acts as the trustee of an SMSF, to obtain a Director Identification Number (DIN). It applies to a person who is a director of a registered body which, for the purposes of this law, includes a company, registered foreign company or registered Australian body which is registered under the Corporations Act.

The new DIN regime is being introduced to deter and detect phoenix activity which occurs when the controllers of a company deliberately avoid paying liabilities by shutting down an indebted company and transferring the assets to another company. According to the Explanatory Memorandum that accompanied the bill, it is estimated that phoenixing costs the Australian economy somewhere between $2.9 billion and $5.1 billion annually.

A person will keep their unique DIN permanently even if they cease to be a director and it’s not intended that a person’s DIN will ever be re-issued to someone else or that one person will ever be issued with more than one. As such, the DIN will provide traceability of a director’s relationships across companies, enabling better tracking of directors of failed companies and will prevent the use of fictitious identifies.

It will also help regulators and external administrators to investigate a director’s involvement in repeated unlawful activity including illegal phoenix activity. Although the law has in the past required directors’ details to be lodged with ASIC, it has not required the regulator to verify the identity of directors.

Under the new regime the Minister will appoint an existing Commonwealth body to be the registrar. The registrar will be responsible for the administration of the regime including the processing of DIN applications. After receiving an application, the registrar must provide the director with a DIN if the registrar is satisfied that the director’s identity has been established. This is the case unless a DIN has already been issued to the director as the integrity of the regime requires each director to hold no more than one DIN.

To allow sufficient time for the development of systems, processes and new technology, the DIN regime will not commence until 12 June 2022, unless an earlier date is set. All existing directors, including acting alternate directors, at this time will be given a period of time to apply for a DIN.

A person who is appointed a director within the first 12 months of the new regime’s operation will be given 28 days to apply for a DIN. After this transitional period ends, the standard rule applies, that is, a director must apply for a DIN prior to being appointed as a director. This transitional period is designed to provide time for new directors to become familiar with the new requirement and for any information or awareness campaigns in relation to it to take effect.

From 12 June 2022 (or an earlier date if one is set), SMSF establishment processes will need to be updated to ensure a person who is to be appointed as a director of the corporate trustee of the fund has a DIN. If the person does not already have a DIN, during the transitional period, an application for a DIN will need to be made within 28 days of their appointment as a director. After this transitional period ends, the application for a DIN must be made prior to their appointment as a director. The same rules will apply to a person who, from 12 June 2022 (or an earlier date if one is set), is appointed as a director or alternative director of a company that was in existence at 12 June 2022.

While the need to obtain a DIN introduces an additional step for SMSFs established with a corporate trustee, it should be remembered that a corporate trustee has many advantages over an individual trustee structure and should remain the preferred option for clients. The introduction of the new DIN regime will enhance the integrity of the SMSF sector by ensuring the identity of a person who is or will be the director of a company that acts as the corporate trustee of an SMSF, has been verified by a Commonwealth body. It should also help to ensure that those who act in the capacity of a director of a corporate trustee of an SMSF are not disqualified from doing so.

What has not changed

While the regulations to allow individuals aged 65 and 66 to make voluntary superannuation contributions without satisfying a work test have been passed, unfortunately amendments to the Income Tax Assessment Act 1997 to allow these individuals to bring forward their non-concessional contributions, did not pass the June sitting of Parliament.

This change is slated to start from 1 July 2020 but will now not be passed until after this date. While we can’t assume this amendment will be passed by the Parliament, we don’t consider this amendment to be politically controversial and therefore expect it will receive a smooth passage through the Parliament when it sits again later in the year. Once passed we expect this amendment will apply from 1 July 2020, as originally intended.

The delayed passage of the legislation does create some difficulties particularly for clients turning 65 in the 2019/20 financial year. If the law is amended as intended, clients turning 65 in the 2019/20 financial year who have the capacity to contribute $300,000, and are looking to maximise the amount they can contribute in the remaining few years before their retirement, may be better off not triggering the bring-forward period until the next financial year.

Staying across the measures which have now been enacted, those that have not and measures from other bills which impact on SMSFs, is never an easy task. In the current environment, where legislation has been rapidly changing, it has never been more important for advisers to stay up to date with the latest developments and strategies.

Source: SMSF Adviser & SMSF Association

SMSF liquidity lessons learned from the pandemic

Jul 21,2020 Comments Off

Sometimes it’s true that you don’t know what you’ve got until it’s gone.

There will be many lessons learned from this coronavirus pandemic and its impact on our lives and investment portfolios.

Few people will view risk – be it to their health or investments – through the same lens again for a long time, if ever.

Rewind to the early days of a bright new year in January.

The notion of a global pandemic that would kill almost 280,000 people and shut down the world economy would have belonged firmly in the realm of Hollywood disaster movies, rather than something you or your super fund had reason to worry about.

Liquidity is one thing that investors take for granted, particularly after an extended period of strong markets growth and, in Australia’s case, no economic recession for 29 years.

However, times of severe market disruption and turmoil effectively stress-test investment portfolios and superannuation, as well as their need for liquidity.

Large super funds have been part of the debate on liquidity, in part because of their need to rebalance portfolios affected by the share market’s drop, as well as a financial hardship support package initiated by the federal government that includes early release of retirement funds.

But it’s not just the fund titans that are rethinking their approach.

Self-Managed Super Funds (SMSF) are also finding they need to focus more on liquidity – particularly when members are approaching or are already in the drawdown, or pension phase.

Super is a long-term investment. So, liquidity can often be traded off when the funds will not be needed to be drawn down for 30 or 40 years.

For SMSF trustees in their 30s or 40s, liquidity is more an opportunity than a risk.

However, for those in retirement the situation shifts. The purpose of super becomes to provide income to fund or supplement your lifestyle once the regular pay-cheque has stopped.

How you manage your SMSF’s liquidity becomes critical at this time because it is your responsibility as a trustee to be able to pay expenses of the fund and benefits to members, as required.

The liquidity challenge for SMSFs invested predominantly in one illiquid asset, such as property, can be dramatic when things do not go to plan.

There are significant risks for those with concentrated direct property portfolios.

Last year, the Australian Tax Office quizzed more than 18,000 SMSF trustees about the diversification of fund portfolios. The letter was sent to trustees that had more than 90 per cent of their SMSF assets in a single asset class – typically property.

The ATO was not saying that you could not invest in just one asset class – it just wanted trustees to be sure they understood the risks – particularly if limited recourse borrowing was involved – on return, volatility and liquidity and a properly considered investment strategy.

At the time, there was discussion around whether it was a proper role for the ATO to ask such a question.

However, for trustees that heeded the warning about the risks of lack of diversification and the potential liquidity risk, it was prescient indeed.

Written by Robin Bowerman, head of corporate affairs at Vanguard Australia.

Source: Sydney Morning Herald

Contributions level out after 2017 reforms

Jul 14,2020 Comments Off

Contributions reverted to normal during the 2018 financial year, following an atypical jump in contributions in anticipation of the July 2017 superannuation reforms, the latest ATO SMSF figures have revealed.

According to the ATO statistical overview for the sector regarding the 2018 financial year, total contributions to SMSFs increased by 32 per cent to reach a high of $41.8 billion in 2016/17, with total SMSF benefit payments increasing by 31 per cent to $46 billion in the same year.

During the 2018 financial year, however, total contributions dropped to $17.4 billion and total benefit payments decreased to $37.7 billion.

In its analysis of the figures, the SMSF Association noted: “[The 2016/17 figures] were significant increases over the previous financial years, most of which can be attributed to a behavioral change resulting from the introduction of the superannuation reforms taking effect on 1 July 2017.

“With the release of the 2017/18 statistics, we now have a reversion to the norm.”

The association pointed out member contributions declined the most during the 2018 financial year, falling to $11.6 billion after peaking at $33.9 billion in 2016/17.

“This is likely due to the fact many SMSFs would have used their three-yearly contribution bring-forward rule in the previous financial year,” it noted.

As part of its analysis, the industry body also highlighted a sharp increase in lump sum withdrawals from SMSFs during 2017/18, which it attributed to the introduction of the transfer balance cap (TBC).

“As SMSFs moved money into accumulation phase and the TBC took effect, they took the opportunity to withdraw funds as a lump sum to keep a larger amount in retirement phase,” it said.

“If lump sums were taken from the retirement phase, this would create debits to their TBC.”

The ATO’s report also revealed the growth in the number of SMSFs reporting limited recourse borrowing arrangements had steadied and is increasing at a manageable rate.

In addition, the ATO found the level of SMSF wind-ups hit a record high during the 2018 financial year, while new establishments fell away.

Source: SMS Magazine

ATO outlines tax return changes for SMSFs this year

Jul 7,2020 Comments Off

The ATO has highlighted some of the new measures and changes to be aware of when completing tax returns for clients this year.

In an online update, the ATO provided an outline of some of the specific measures and support available for individuals impacted by COVID-19 as well as some changes specific to SMSF clients.

Updated SMSF instructions

The ATO said that the instructions for “Section A: SMSF auditor Part A” have been updated to help clarify the requirements for the fund.

“This question can now be answered as ‘No’ if the audit report was qualified only in relation to insufficient audit evidence under Auditing Standard ASA 510 Initial Audit Engagements – Opening Balance,” the ATO explained.

Question 6D also no longer includes Part A qualifications, the ATO said. This question relates only to rectifying to Part B of the audit report.

A new label, J7 Property count, has been added to section H: Assets and liabilities at 15b.

“If your SMSF holds investments in real property that was held in trust as a security under a limited recourse borrowing arrangement, this information must be reported at J7 Property count,” the ATO explained.

Label G1 Death benefit increase at Section C, Deductions and non-deductible expenses has now been removed.

“If a fund member died on or before 30 June 2017, the fund must have paid the benefit before 1 July 2019 to be eligible to claim a deduction. From 1 July 2019, the deduction is no longer available,” the Tax Office stated.

NALI changes

The ATO reminded SMSF professionals that from 1 July 2018, NALI was expanded to also include income derived by an SMSF from a scheme in which the parties were not dealing with each other at arm’s length.

“This is where the fund incurred expenses (including nil expenses) in deriving the income that are less than those which the SMSF would otherwise have been expected to incur if the parties were dealing on an arm’s-length basis,” it explained.

“The expenses may be of a revenue or capital nature in the same way that NALI may be statutory or ordinary income.”

From 1 July 2018, income derived by an SMSF in the capacity of beneficiary of a trust through holding a fixed entitlement to the income of the trust will be NALI where both:

The SMSF acquired the entitlement under a scheme or the income was derived under a scheme in which parties weren’t dealing with each other at arm’s length.
The SMSF incurred expenses in acquiring the entitlement or deriving the income that are less than, including nil expenses, what the SMSF would otherwise have been expected to incur if the parties were dealing on an arm’s length basis.

Source: SMSF Adviser

Property and my SMSF

Jun 3,2020 Comments Off

Directly held property makes up approximately 19% of all SMSF assets, indicating that many SMSF trustees consider it’s an important and significant part of a diversified portfolio. There are numerous strategies and ways for property to form part of an SMSF’s investments and each must be carefully considered.

Investment strategy first!

Before any investment decision, it is imperative and a legal requirement that you as an SMSF trustee must consider your investment strategy. Your strategy should detail such things as how much exposure you would like to the property market, the form of exposure and how appropriate it is for your current circumstances. A well-diversified portfolio is essential to provide income for retirement and spread investment risk so that any single asset class, such as property, does not dominate your SMSF risk and returns.

Direct investment

A common form of property exposure is direct investment into a property. This can be in the form of either a residential property or commercial property. When purchasing a property with an SMSF’s cash there are some important considerations that must be worked through including:

Your asset allocation and diversification.
Potential rental income and property expenses.
How close you are to retirement and the need for liquid assets to pay pensions.
Unless the property is a business real property (BRP) you or your related parties cannot use the property:
- If the property is BRP you may be able to work from the premises which is owned by your SMSF.
- You may also be able to utilise the small business CGT concessions and contribution limits.

Limited Recourse Borrowing Arrangements (LRBA)

SMSFs may also invest in property through an LRBA. These are complex borrowing structures which allows SMSF trustees to take out a loan from a third party lender. The SMSF trustee then uses these funds to purchase a property to be held on trust. The lender only has recourse to the property held in the trust – this is why the loan is “limited recourse”.

An LRBA should only be utilised when it is the right structure for your SMSF on the basis of SMSF Specialist advice. Some very important considerations in addition to the ones above include:

Can your SMSF maintain the loan repayments over a long period of time considering asset returns, interest rates, liquidity, and contributions caps?
Evaluating set-up costs and structures.
Is your property valuation accurate?
You cannot use borrowed money to improve the asset or change the nature of the property at any time.
Do you meet the strict bank lending requirements?
- Typically, lenders require the SMSF to have a minimum of net assets of $200,000 or more and for the loan to have a loan to value ratio below 70%.

Indirect investment

Another way to gain exposure to property for SMSFs is through indirect investment. This can include listed invested vehicles such as, listed investment companies and exchange traded. Managed investment trusts are also a common investment for SMSFs to gain exposure to property. Investing indirectly may suit your SMSF needs more than a purchase of a property because it is relatively simple and most likely will not require a large amount of capital. It also allows your SMSFs to get exposure to large value properties such as office blocks, shopping centres and industrial properties that would otherwise be out of reach. Investing in these products should be accompanied by SMSF Specialist advice.

Source: SMSF Association

Have you considered what you will do if an unexpected event occurs?

Jun 3,2020 Comments Off

Your SMSF is a long-term plan. Much can happen during this time including illness, incapacity or death of a member.

It is best practice to have contingency plans in place to deal with unexpected events. For example, if a fund member dies, leaving you as the sole member are you happy to continue with the SMSF?

Outlined are some issues to consider planning for as trustees. Leaving the planning to when, and if an event happens may be too late.

Death – Think about where you want your superannuation to go on your death. Given the introduction of the $1.6 million transfer balance cap which means larger sums of money may need to leave the superannuation system sooner, planning has never been more important. You may need to think carefully about who receives your superannuation on death to maximise its benefit for your beneficiaries.

The rules of your SMSF, as set out in your trust deed and related documents, determine how the trustee structure is to be reconstructed on the death of a member as well as how death benefits are to be handled by you and your fund.

A lot of careful consideration needs to be given to understanding the member’s wishes to ensure that your fund’s trust deed and broader governing rules are drafted appropriately to achieve these requirements.

Legal tools to help direct your superannuation can include making a binding death benefit nomination to nominate who will receive your superannuation on your death or providing for your pension to continue (or revert) to a permitted beneficiary (such as your spouse) following your death.

You may also consider appointing a corporate trustee. If the membership of an SMSF with individual trustees changes, the names on the funds’ ownership documents must also change. This can be costly and time-consuming.

A corporate trustee will continue to control an SMSF and its assets after the death or incapacity of a member. This is a significant succession-planning issue for an SMSF as well as for the estate-planning of its members.

Diminished capacity – Consider the consequences if you become unable to act as trustee (e.g., due to mental incapacity). You can appoint an enduring power of attorney to act in your place as trustee, if required. This is someone who can be trusted to handle your financial affairs and can be appointed as trustee of the SMSF.

Member leaves – How would your SMSF be affected if one or more of the fund members decided to exit the fund? For example, an SMSF heavily weighted in real estate may have to sell the asset, or introduce a new fund member to allow the exiting member to transfer out of the fund.

Separating couple – Family law contains a number of options for superannuation to be split between a couple who separate or divorce. Your superannuation is treated separately to your other property, so specialist advice may be needed.

Reviewing your insurance – SMSF trustees should regularly review insurance as part of preparing your investment strategy. This includes considering whether or not insurance cover should be held for each SMSF member. Your insurance cover may be essential if an unexpected event occurs.

In some circumstances, you may already be holding insurance through membership of a large super fund. This policy may exist due to an employment arrangement and may be more cost-effective than an equivalent valued policy that you could hold within an SMSF. However, not all insurance policies are the same, so seeking advice will help you to understand your needs.

Administration of your SMSF – If an unexpected event happens you may need to consider winding up the fund if managing the fund will be too time-consuming, onerous or costly for the remaining members.

As annual SMSF running costs generally remain fixed, your superannuation balance may fall to a level where it is not cost-effective to remain in an SMSF – at this point, it may be appropriate to transfer out of the fund (e.g., to a retail or industry fund).

Source: SMSF Association

When did you last review your SMSF’s investment strategy?

Jun 3,2020 Comments Off

You may be aware that the Australian Tax Office (ATO) has issued letters to nearly 18,000 SMSF trustees as part of a campaign to ensure trustees are aware of their investment obligations.

Of key concern is ensuring that trustees have considered diversification and liquidity of their assets when formulating and executing their fund’s investment strategy.

Importantly, it must be noted that the ATO letters are not an attempt to regulate and limit the control and freedom that SMSF trustees have but rather ensuring that if trustees wish to invest their assets in a certain way that they must clearly articulate their reasons for doing so.

An investment strategy should be considering the SMSF’s blueprint when dealing with the fund’s assets to ensure the SMSF’s investment objectives and members’ goals are met. It provides the parameters to ensure you invest your money in accordance with that strategy. This is where the ATO has a primary function to ensure that trustees act in accordance with these obligations.

An SMSF investment strategy must take into account the following items:

The risks involving in making, holding and realising the SMSFs investments, their expected return and cash flow requirements of your SMSF.
The diversification and composition of your SMSF investments.
The liquidity of your SMSF investments, having regard to expected cash flow requirements.
The SMSFs ability to pay your current and future liabilities, including benefits to the members.
Considering whether to hold insurance cover for each member of your SMSF.

An important requirement for you as trustee of your SMSF is to have an investment objective and a strategy to achieve that objective in place, before you start to make decisions about how you want to invest your SMSF money.

Of equal importance is that the investment objective and strategy is not set in stone. You can choose to change the investment objectives you have set for your SMSF at any time.

It’s not uncommon for SMSFs with lower member balances to find diversification a challenge as there is limited money to invest. Nonetheless, you are still required to demonstrate that you adequately understand and mitigate the associated investment risks.

If you find yourself in this position, it is important your investment strategy reflects these risks.

For example, if you have invested in a large illiquid asset such as real property which may form the majority of your fund, it is timely to ensure your strategy reflects the concentration and liquidity risk associated with this investment.

Where you have in place an adequate investment strategy that deals with these risks and can provide the necessary evidence to support your investment decisions, no further action is expected.

Where your fund has not complied with its investment strategy requirements under superannuation law, you may be liable to administrative penalties being imposed by the ATO, as Regulator of the SMSF sector.

Your investment strategy does need to be reviewed at least once a year and this will be evidenced by your approved SMSF auditor. It is also important to review your strategy whenever the circumstances of any of your members change or as often as you feel it is necessary. The following practical tips will help you keep on top of your obligations:

Put your investment objective and strategy in writing
Set an investment objective that you can comfortable achieve with the underlying investments you are comfortable to invest in
There is no template for an investment object and strategy, but make sure they reflect how you intent to invest your SMSF money
The investments you actually make must be accommodated by the investment strategy you have set
Most importantly, document your actions and decisions, as well as your reasons, and keep them as a record in order to demonstrate that you have indeed satisfied your obligations as a trustee in this important area

Source: SMSF Association

Personal Superannuation Contributions – 10% rule repealed

Jun 3,2020 Comments Off

With the end of the financial year fast approaching, it is time to start thinking about income tax deductions.

Under the new Government changes to super, effective 1 July 2017, the 10% maximum earnings condition for personal superannuation contributions was removed for the 2017-18 and future financial years.

This rule provided that an individual must have earned less than 10% of their income from their employment related activities to be able to deduct a personal contribution.

This change ensures that individuals receiving employment income are not dependant on whether their employers offer salary sacrifice arrangements. Self-employed individuals and individuals in receipt of passive income can make deductible personal contributions regardless of the amount of salary or wages they earn.

This means most individuals under 75 years old can now claim a tax deduction for personal contributions to their SMSF (including those aged 65 to 74 who meet the work test).

Before the end of the financial year you need to:

Review if you have income available to contribute to your SMSF.
Review your total concessional contributions to ensure they are below the annual cap of $25,000.
Review any current salary sacrifice arrangement you may have for its necessity and benefits.

To be eligible for the deduction, you need to provide a valid notice of intention to deduct and have received acknowledgement of this notice from the fund.

Splitting amounts to your spouse

If you are planning to split all or part of your personal contributions with your spouse, you should give your trustee the notice of intent to claim a deduction first.

If your trustee has accepted your application to split your contributions, they cannot accept the notice to claim a deduction.

This change may require you to adjust your contribution strategies going forward.

This will most likely be the case if you are under 75 and the previous 10% rule prohibited you from making personal superannuation contributions.

Source: SMSF Association

Is your SMSF diversified?

Jun 2,2020 Comments Off

SMSF trustees need to truly understand diversification and better diversify their portfolios.

The benefits of a well-diversified portfolio are numerous but the key ones that SMSF trustees should focus on are the benefits of mitigating volatility and short-term downside investment risks, preserving capital and the long-run benefits of higher overall returns. By spreading an SMSF’s investments across different asset classes and markets offering different risks and returns, SMSFs can better position themselves for a secure retirement.

However, did you know that 82% of SMSF trustees believe that diversification is important but in practice many do not achieve it?

This is because half the SMSF population cite barriers to achieving diversification. The top being that it is not a primary goal for SMSF trustees, and they believe they have a lack of funds to implement it.

Furthermore, 36% of SMSF trustees say they have made a significant (10%) asset allocation change to their SMSF over the last 12 months. This demonstrates that SMSFs may not be actively restructuring their portfolio on an annual basis to respond to changing market conditions.

Another clear problem regarding diversification is the amount of SMSFs with half or more of their SMSF invested in a single investment. SMSF trustees say they primarily invest in shares to achieve diversification in their SMSF, while just a quarter say they invest in at least four asset classes to achieve this.

The bias and significant allocation to domestic SMSF equities conversely may highlight the fact that SMSFs are not adequately diversified, especially across international markets and other asset classes.

So what can you do?

Some of the steps you, with the help of an SMSF Specialist, can take to diversify your retirement savings and control your investments in a disciplined and planned way include:

Ensuring there is a clear and demonstrable retirement purposes in the choices you make.
Ensuring you have an investment objective and a strategy to achieve that objective in place.
Reviewing your portfolio and assessing it against the objectives you have set as often as you feel is necessary.
Minimising concentration to any one asset class.
Ensuring your Australian share portfolio is sufficiently diversified.
Considering the benefits of geographic diversification.
Ensuring your cash allocation is appropriate.
Considering the benefits of exchange traded funds, listed investment companies and other digital investment platforms that allow low cost access to different markets.

Always remember to document your actions and decisions, as well as your reasons, and keep them as a record in order to demonstrate that you have satisfied your obligations as a trustee.

Given the importance of having an appropriately diversified portfolio and its impacts on quality of life in retirement trustees ought to consider professional assistance in managing this important aspect of an SMSF.

Source: SMSF Association

Superannuation death benefit limitations

Jun 2,2020 Comments Off

As an SMSF trustee, you need to take special care when paying death benefits as you are responsible for ensuring that the payment rules are met. Strict rules apply, affecting who can receive a death benefit, the form in which the death benefit can be paid and the timing of such a payment.

Firstly, death benefits can only be paid either to dependants of the deceased member or the estate of the deceased.

Second, the law limits the group of dependants who are eligible to receive a pension on the death of the deceased member.

Finally, trustees must pay a death benefit as soon as possible after the death of the member. Additionally, each death benefit interest can only be paid to each dependant as either:

a maximum of two lump sums (an interim and final lump sum), or
a pension or pensions in retirement phase, or
a combination of both.

It is the limit of a maximum of two death benefit lump sums per dependant that trustees need to keep track of to ensure that the cashing rules are not inadvertently breached, especially where the death benefit is being paid as a pension.

Given the account-based nature of death benefit pensions that can be paid by an SMSF trustee, an SMSF member is generally afforded the flexibility to nominate to convert a death benefit pension into a lump sum payment. This process is generally referred to as the commutation of a pension although may be subject to specific restrictions found in a trust deed.

A partial commutation is where the beneficiary requests to withdraw a lump sum amount less than their total pension entitlement, allowing their death benefit pension to continue. This is common where members withdraw their required minimum drawdown as a pension with any additional income needs met by accessing multiple lump sums from their pension account. This strategy allows the death benefit pension to continue without breaching the superannuation death benefit rules, despite payments in excess of the maximum two lump sum limit.

A full commutation will result in the death benefit pension ceasing at the time the member decides to withdraw their entire pension entitlement as a lump sum. Despite the number of lump sum death benefits previously received, the law allows the beneficiary to roll over the lump sum resulting from a full commutation to another superannuation fund for immediate cashing as a new death benefit pension.

However, where a lump sum resulting from the full commutation of a death benefit pension is paid out of the superannuation system, further clarity is being sought from the ATO to ascertain whether or not this will be treated as an additional lump sum death benefit that would count towards the maximum two lump sum cashing limit. Until further clarity is provided by the ATO, caution needs to be exercised before a death benefit pension is fully commuted and paid to the dependant, especially where the dependant has previously received a lump sum death benefit.

As an SMSF trustee, you need to be aware of the restrictions placed on the payment of death benefits to eligible dependants of a deceased member. Trustees who ignore these limitations risk breaching superannuation standards and potentially being liable to be fined by the Regulator.

Source: SMSF Association

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All posts by accelr8

Lesser known change, and an unfortunate delay, leave their mark

SMSF liquidity lessons learned from the pandemic

Contributions level out after 2017 reforms

ATO outlines tax return changes for SMSFs this year

Property and my SMSF

Have you considered what you will do if an unexpected event occurs?

When did you last review your SMSF’s investment strategy?

Personal Superannuation Contributions – 10% rule repealed

Is your SMSF diversified?

Superannuation death benefit limitations