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The only issue is one of the members’ rollover balance did not go to the fund by 30 June 2022 yet the SMSF purchased an insurance policy for that member which is creating a negative member balance.
Would that be a breach? This is the first year of the SMSF's fund reporting. The problem got fixed in July when the rollover balance was received. I also noticed that the SMSF tax return does not accept a negative member's balance.
Thanks so much
Hi Md Ashfaque Alam
This issue has been raised previously and occasionally it does occur.
My view is that normally this would not be a reportable breach on the basis that it is rectified.
This occasionally occurs when a member has a low balance (or $0 balance) and life insurance is paid in respect of that member.
Possibly you could argue it is a breach of Regulation 5.08 of SIS in that a member's minimum benefits have not been maintained (in respect of the other members of the Fund as their benefits have been used to Fund another member's life insurance).
If you refer to the ATO's instructions if it was a new Fund it would not be a reportable breach on the basis it is less than $2,000.
My approach would be to report it to the trustees as a breach of Regulation 5.08 of SIS in your annual trustee / management letter. If the same breach occurred in a later year I would lodge an auditor contravention report re the breach.
In relation to the SMSF tax return issue (& financial statements) the accountant could:
1) show the insurance paid as a sundry debtor at 30/6/2022, or
2) take up a sundry debtor at 30/6/2022 in relation to the rollover received in July 2022.
If other forum member's have a differing view or approach to the accounts / tax return please let the forum know.
Thanks
SMSF AAA