ATO defines ‘financial assistance’

Trustees of self-managed superannuation funds (SMSFs) could unwittingly break the law by helping fellow members financially, according to a new Australian Taxation Office (ATO) ruling.

GMK Centric taxation director Chris Wookey said the ATO had issued the new ruling prohibiting a fund giving financial assistance to members.

“Under the SIS Act [Superannuation Industry (Supervision) Act], trustees of a SMSF are prohibited from providing financial assistance to members or their relatives using the fund’s assets,” he said.

“The ATO has defined what is financial assistance, including indirect benefits.”

Wookey said people had always been tempted to raid super funds for cash, but there were some other areas, such as being the guarantor for a loan, which would create a breach under the new ruling.

He said while such breaches are not common, SMSF trustees have been reminded of the effect of the ruling given the financial pressures many are facing.

“If a member took out a loan and the fund became guarantor, this would be [a] breach,” he said.

“It is not something that would appear on the financial statements of the fund, thereby making it hard to pick up by [an] accountant or auditor.”

Wookey said an accountant would have to request documents from the member about the loan if they suspected this had happened.

“This makes the role of the accountant or auditor more risky when signing off saying a fund is compliant,” he said.

“People will need to ask more questions and get certification letters from their clients to make sure this isn’t happening.”

The ruling has defined other prohibited forms of assistance, such as selling an asset to a member at less than its market value or handing it over as a gift.

“The fund could also pay an inflated price for a service provided by a member, and again this is prohibited under this ruling,” Wookey said.

“Another breach is when the fund releases a member from a financial obligation owed to the SMSF.”