In a recent webinar for DBA Lawyers, senior associate William Fettes said the tight time frame of responding to a request to leave can give rise to contravention reports and possible penalties for an SMSF.
“Prior to 30 November 2019, a member of an SMSF could not compel a trustee to roll their benefits to another fund, as the portability rules in the SIS regulations did not apply to SMSFs prior to that date,” Mr Fettes said.
“You would have needed to have some mechanism in your deed, which was not common in most trust deeds, to force that kind of issue.
“It was really up to the trustee to determine how to field that request. Of course, the portability rules did apply to other types of funds such as large APRA-regulated public-offer funds, which were compelled to shift a member to their nominated fund, but they did not apply to SMSF.
“That changed with Treasury laws amendments in 2018 which extended the portability rules to SMSF, which is something that advisers need to be up to speed with because now an SMSF can compel a trustee to roll out their benefits. It is now a compliance standard for the trustee to address that request.”
Mr Fettes said the general starting point for time frames where a member has made a rollout request is that it must be done as soon as practicable– no later than three business days, which is where challenges may arise.
“There are protocols that can apply to extend this deadline so it’s not necessarily always going to be three business days, but it is certainly as soon as practicable depending on the details that have been provided in relation to the member’s nominated fund and its complying status,” he said.
“There is also SuperStream to contend with unless it’s a family law split transfer or an in specie transfer.”
He said it is this tight time frame of three business days that could initiate a show-cause from the member.
“It’s a very tight timeframe to adhere to in practice, but there’s also the sting in the tail with Reg 6.17 of the SIS regulations which states you must comply with the payment standards and that is an operating standard for SMSFs.
“If you contravene that, it’s 20 penalty units per contravention per trustee and with the recent increase in admin penalties up to $313, just one contravention, if it’s a corporate trustee will be $6,260 for failing to potentially roll out within three business days.”
