An SMSF journal entry is not enough

Monica

A helpful guide to the need to pander to the silly nature of this requirement.

How would this work (or not) if the wife receiving a cheque endorses it (as she can under banking law, a cheque being a negotiable instrument) back to the Fund for making a contribution?

Hi Ramani,

Regardless of whether the death benefit is paid by cash or cheque, what the ATO would be looking for is money leaving the SMSF’s bank account. The SMSF would need to show evidence of cash being available to pay out the death benefit and an entry in the SMSF’s bank account showing the money leaving the SMSF. The SMSF would also need to show evidence of the receipt of contributions from the wife with an entry in the SMSF’s bank account. If that can be achieved with a cheque endorsement, then I guess it is possible.

Can you please advise me if the same requirement applies when a SMSF is in the pension phase and the beneficiary is a child under the age of 18?
What are the options when a fund is in the pension phase and the spouse is dependent on the income from the fund? If she is over 65 and not working she is limited as to what she can contribute back into the fund.
If the SMSF held its assets as equities/managed funds or property, would transferring these equities/managed funds/property to the wife on the death of the husband qualify as cashing out? Or is the only option a cash payment.

Hi Bruce,

Yes, the same rule applies if the beneficiary is a child under the age of 18 and the deceased is in pension phase and a lump sum death benefit is required to be paid from the SMSF. However, if the requirement is for the child to continue to receive the pension, then pension payments would continue to be paid from the SMSF. There would be no need for a lump sum death benefit to be paid from the SMSF. The deceased’s superannuation savings will simply continue to be paid to the child.

Also, if the death benefit is to be paid to the surviving spouse as a continuation of the deceased’s pension, then the pension will continue to be paid to the dependent. This would not require a lump sum death benefit to be paid, and therefore, there is no need for money to be paid out from the SMSF and for the wife to be working to be able to contribute the money back.

A lump sum death benefit can be paid in-specie using assets of the SMSF. Therefore, cashing out includes payment of a lump sum benefit by transferring assets of the SMSF to dependents. The ATO would check for the legal ownership of assets transfer as evidence.

Monica

Thanks for the response.

In regard to your answer about in specie payment of death benefits as a lump sum (probably supplemented with the anti-detriment clawback), I suppose nothing would preclude the same assets being contributed back to the SMSF (subject to contribution rules & governing rules allowing in-specie contributions or at least not prohibiting them, and the assets being stock-exchange listed)?

I accept that this is getting farcical, really, but compliance is sacrosanct compliance.

Ramani, you are correct.

There is nothing stopping a contribution being made using assets as long as it complies with all the superannuation law requirements. That is, it needs to be an asset that the SMSF is able to acquire from a member/beneficiary (therefore you need to be careful if the asset is not a business real property); the contributor needs to be a member of the SMSF; the contributor must meet the part time work test if over the age of 65 or more etc.