Clients wanting to make donations to charitable causes associated with bushfire relief from their super may encounter problems unless they have triggered a condition of release, according to SMSF Alliance.
The SMSF administrator’s principal, David Busoli, said in an email update that the issue of funding large-scale donations to bushfire relief charities was likely to come up among clients in the coming days as damage from Australia’s bushfire disaster escalated.
“SMSF members, as trustees, are more vulnerable to breaching early access provisions as they directly control access to their member accounts,” Mr Busoli said.
“They need to be aware that SMSFs are prohibited from making donations as there is a clear breach of the sole purpose test. Alternatively, any member may draw on unrestricted non-preserved monies, then one they hold the withdrawal personally, do with it as they wish.”
Mr Busoli said members could only draw from funds in their SMSF to make a donation if they had met a condition of release, which could involve either fully retiring or finishing a job after the age of 60.
“Apart from actual retirement after preservation age, a useful trigger of release between the ages of 60 and 65 is the cessation of a situation of employment as retirement is not required,” he said.
“It may be triggered if a member loses their job or ceases it voluntarily. It may even be invoked if the member is working at both a full-time and part-time job and ceases either of them.”
Members under the age of 60 would not be able to access their super for donation purposes, but may be able to do so under financial hardship provisions if they had been personally affected by the fires, Mr Busoli said.
“For an SMSF member, the ATO, not the trustee, decides on whether a trigger of release due to compassionate grounds is allowable,” he said.
“Qualification is difficult. Compassionate grounds generally involve medical expenses and related issues but also include making a payment on a loan, or council rates, to prevent the loss of the member’s principal place of residence, but only if the member is legally responsible for making the mortgage payments.”
If the member qualified for release on compassionate grounds, they could only access a maximum amount up to three months’ worth of loan repayments plus 12 months’ interest on the outstanding loan balance. However, this amount would be less if the full amount was not required to stop the foreclosure, Mr Busoli said.
Several firms have been impacted by the corporate regulator’s action.
Super funds must now have a retirement income strategy in place.
Vanguard has called for a complete overhaul of the advice industry.
Get the latest news! Subscribe to the ifa bulletin
Get notifications in real time and stay up to date with content that matters to you.