Business news

Harder line for acrimonious member exits

SMSF member exits

Protracted member exits which cause an SMSF to effectively become an non-complying fund are beginning to be treated more severely by the ATO.

The ATO is beginning to take a tougher approach in circumstances where an SMSF is effectively non-complying due to a situation where the process of removing a member has led to protracted exits, a superannuation lawyer has said.

“[There are] many funds we’re dealing with at this time that are non-complying and non-complying in big ways. [For example] the house in the fund is now [one member’s] home, one spouse has taken up accommodation [in a property] in the fund, or they’ve ripped money out [of the fund],” DBA Lawyers director Daniel Butler told delegates at the recent Self-managed Independent Superannuation Funds Association SMSF Professionals Half Day Seminar.

“The ATO, to a certain extent, are somewhat accommodating here, however, they are getting less accommodating. So be very careful [in these situations].”

According to Butler, circumstances where member exits may lead to an SMSF becoming non-complying generally see a member disagreement leading to a refusal to sign official documents, such as financial statements and annual returns, resulting in non-lodgement.

“[These are] all the warning signs where the ATO are going to come down [on the fund] big time,” he noted.

“The admin penalties alone will hit [the fund] up badly and if [the SMSF has] individual trustees, you will be doubling your penalties there.”

He revealed a measure to mitigate this type of risk is to include conditional membership clauses in the SMSF trust deed. This involves a process where an individual agrees to how they can be exited from the fund at the moment they are admitted as a member of the fund.

“It’s not without risk and it’s not a guarantee [a complicated exit won’t occur],” he said.

For SMSFs with a corporate trustee, he said the constitution of the company has to be appropriately worded to guard against these situations to stipulate who has a casting vote to break any deadlock when deciding to remove a member from the fund.


Our Story

selfmanagedsuper is the definitive publication covering Australia’s SMSF sector. It uniquely offers online content tailored separately for SMSF professionals and individual trustees participating in the fastest growing and largest sector of the superannuation industry. As such, it is a must read for those wanting to stay informed about the latest news, regulatory developments, technical strategies, investments, compliance, legal and administration issues concerning SMSFs.

Copyright © SMS Trustee News 2024

ABN 43 564 725 109

Benchmark Media

Site design Red Cloud Digital