Don’t undervalue importance of compliance documents

Compliance with the law is the price we pay for the tax concessions enjoyed by superannuation.  But it’s not enough to comply – you have to be able to prove you have.  Elizabeth Wang elaborates.

With the Australian Taxation Office (‘ATO’) closely monitoring SMSF audits it’s important that trustees ensure that their SMSF has all the necessary compliance documents, particularly where a member is exiting or has exited the SMSF and a bank or the auditor requests such documentation.

Scenario 1: Deceased member  

Exit of member documents should be prepared to formally note the exit of a deceased member from an SMSF.

•    John and his wife Mary are the trustees of their SMSF.
•    John is the sole member of the Fund.
•    John’s death benefits have yet to be paid out of the SMSF
•    It has been more than a year since John has passed away.
•    John appointed Mary and his son Ben as his joint executors in his Will and they have been granted probate of the Will.
•    In order for Mary and Ben to administer assets held in John’s bank account the bank is requesting documents which formally note John’s exit as a deceased member of the Fund in addition to change of trustee documents to make appropriate changes to the trustee structure or membership before it ceases to be a complying SMSF.

In the above scenario, the SMSF should have exit of member compliance documents to formally note John’s exit as a member of the SMSF due to him passing away.

The ATO should also be notified by completing ATO Form 3036 as soon as practicable of the change in membership and change in trustee structure of the Fund.

The exit of member documents should be kept on the SMSFs registrar.

Scenario 2: Member has a nil member balance

Another example of when exit of member compliance documents are required is to note the exit of members in an SMSF who have a nil member’s balance.

•    Eleanor and James are noted as the members and individual trustees on their SMSF records
•    Eleanor is the only member who has a member balance in the SMSF
•    Eleanor wishes to change the trustee structure of the SMSF to a corporate trustee prior to entering into a limited recourse borrowing arrangement and obtaining finance from a commercial lender
•    The bank as part of their loan approval process is requesting copies of the current trust deed, deed of change of trustee documents and bare trust deed
•    As James is noted as a member and trustee of the SMSF, the bank is requesting further documentation to show who the current members and trustees of the SMSF are.

In the above scenario, the SMSF should have exit of member documentation that formally notes that James has never had a member’s balance since the Fund was established.

Scenario 3: Ex-spouse’s exit as a member  

An SMSF should also keep on its register confirmation of exit of member documentation where an ex-spouse has exited an SMSF in the event that the Fund gets audited and the SMSFs auditor requests such documents.

•    Stephen and Jane have been divorced for quite some time.
•    As part of the Family Court Order, Jane was ordered to rollover all of her member entitlements in the SMSF to another superannuation fund.
•    Jane was also required to resign as a director of the corporate trustee
•    The fund’s auditor is requesting documentation to confirm who is the current member and director of the corporate trustee given that the SMSFs current trust deed shows Stephen and Jane as the members and directors of their SMSF.

In the above scenario, the SMSF should have confirmation of exit of member documents which would not only confirm Jane’s exit as a member of the SMSF but also confirm that Jane has no further balance in the SMSF.

Documents to confirm Jane’s resignation as a director may also be necessary.