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It has been uncovered that an SMSF has been paying life insurance premiums for one of its members for the past 7 years that is in the name of the members Family Trust with a corporate trustee. Not sure how this wasn't picked up by an SMSF Auditor, anyhow, under section 66(2a) the SMSF is allowed to acquire " a life insurance policy issued by a life insurance company (other than a policy acquired from a member of the fund or from a relative of a member)" which looks to be the case here -
Question - what happens to the 7 years of premiums that were identified that didn't relate to the SMSF will these payments still be considered a breach and need to be repaid by the trustees?
Hi Tony
It would be good to get other member's views re your query.
In my view preferably you would get a declaration signed by the Trustee / Trustees of the Fund that the Fund had always been the intended owner of the life insurance policy and that was why it was always paid by the Fund.
On that basis the breach arguably would be that Fund assets have not been kept separate from personal assets (regulation 4.09A). That breach has now been corrected / rectified by transferring the ownership of the policy to the Fund.
If you are of the view that the life insurance paid re the previous 7 years should not have been paid for by the Fund then these payments would need to be recorded as an amount owing to the Fund.
Also of concern is whether the Fund was entitled to the life insurance deduction in prior years if the policy was not in the name of the Fund.
Thanks
SMSF AAA