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Lawyer flags serious risks with use of undated benefit requests

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By Miranda Brownlee
10 March 2023 — 2 minute read

SMSF professionals have been warned that encouraging clients to use undated benefit request documents could put them at risk of the promotor penalty regime.

Last month, the ATO updated its website to provide further clarification on when benefits requested members shortly before death will be a member benefit or death benefit.

The guidance makes it clear the ATO’s position is if a trustee is paying benefits after a member has died, it would be “highly unusual circumstances for that not to be a death benefit”.

In one of the examples involving an SMSF, the trustee is aware the member has passed away before authorising the payment and his super benefits are paid to the legal personal representative’s account.

The ATO states in this example that the benefit would be classed as a death benefit.

Speaking in a recent webinar, DBA Lawyers special counsel Bryce Figot stated that some practitioners may try to justify treating the benefit as a member benefit in these sorts of circumstances on the basis that the member had requested it and not because of death.

“I can imagine people saying ‘no we’re not paying it because of death, we’re paying it because of this undated document which we’re now going to date’,” said Mr Figot.

Mr Figot warned that the use of undated member benefit requests in this way is a risky move, however, and may even see SMSF practitioners fall foul of the promoter penalty regime.

The promoter penalty laws, he explained, state that an entity must not engage in conduct that results in that or another entity being a promotor of a tax exploitation scheme.

These laws are drafted in quite a broad way, said Mr Figot, meaning these kinds of activities could fall under the regime.

He noted that there can be legitimate reasons for pulling money out of super such as someone becoming ill and needing to move into aged care.

“However, its often the case that they just wanted to do it before death so that the beneficiaries could receive it tax free because if it happened after death there is suddenly a 17 per cent tax rate,” he said.

“Even if the ATO hits you with a part IVA, it could still be classified as a tax exploitation scheme,” he warned.

ATO deputy commissioner, superannuation and employer obligations Emma Rosenzweig also recently warned SMSF trustees against using these undated documents.

Ms Rosenzweig said having documents ready to go, requesting payment of benefits, undated, in the case of terminal illness or impending death, was not behaviour that the ATO condones.

“I know there are other commentators who have made strong comments about that potentially being a fraud,” she said.

“It also won’t change the characterisation. It still needs to be a highly unusual situation so just having those documents ready to go is not something that I recommend people do.”


Lawyer flags serious risks with use of undated benefit requests
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