The stories are always similar. Your friends mother, who’s either elderly, or doesn’t speak English as her first language, get’s a call around 7pm. The caller advises they are from the Australian Tax Office (ATO), and that she owes a large amount of tax debt.

They are very demanding and hostile. They say they will call the police if she doesn’t pay her debts now. She is worried – she doesn’t want to go prison. She asks how she can pay her debts back. They advise her she can pay it off using gift cards. She drives to the nearest supermarket and purchases several gift cards – JB Hi-Fi, Google Play, even cards for Woolworths and Coles, amounting to the $4000 she owed.

She then receives text messages – The ATO wants photos of the gift cards, showing the validity codes. She sends them and thinks it’s finally over.

The next day they call her again – They request more money, and more cards. She realizes she is being scammed.

It’s probably happened to someone you know. They contact you or someone you love via email, or phone or mail demanding money, and threaten you if you do not meet their request. When the demands are met, the consequences are devastating.

Types of Tax Scams

Now that tax time is here, criminals may attempt to access individuals’ and businesses’ money and information. It’s so prevalent during tax time, in fact, that in 2021, the ATO received over 50,000 reports of scams, with $800,000 reportedly lost!

Here are three main types of scams that involve criminals impersonating the ATO.

Tax refund scams

Scammers contact you, usually via text, or e-mail, claiming that you’re owed a tax refund. They require you to click a link that takes you to a website that mirrors MyGov or the ATO. From here, you are advised to input your personal details, and then pay a processing fee to release your funds.

The scammer uses this information to siphon funds from the bank account and personal information provided on the fake page. They further use your ‘processing fee’ as a bargain point to either harass you to pay any more ‘hidden fees.’ They also threaten you against calling the police by arguing the processing fee was consensual upon you realizing this was a scam.

In worst case scenarios, the scammer will use your personal information for identity theft.

Tax owed scams

These scammers contact you pretending to be the ATO and claim that you have a tax debt. They then demand that you pay the debt immediately to avoid being arrested. They may ask you to pay by credit card, money transfer, or ask you to pay it back using gift cards.

These scammers are often demanding and very hostile. While the ATO does from time-to-time contact people who are owing debt, they will never –

• Call you with a pre-recorded message
• Threaten you with immediate arrest or use profanity
• Demand payment through gift cards or to personal bank accounts
• Insist you stay on the line until a payment is made

• Call with Caller ID.

It can sometimes be useful to familiarize yourself with what a fake call from the ATO will sounds like. You will find many recordings of them on YouTube, such as this one from 2018.

Tax File Number (TFN) and Australian Business Number (ABN) scams

These scams are often found on social media, promising to set up a TFN and ABN for a fee.  Instead, they steal your money and personal information.

Applying for a TFN or setting up an ABN is free. If you are applying through a tax agent, however, you may be charged a fee. You should always check if they are registered with the Tax Practitioners Board.

How To Sniff a Scammer

Don’t get caught up in a scam. Below are some tips to stay safe and wary of scammers around tax time.

Email or Text Scams

If you receive an email or text message from a number claiming to be the ATO, and they ask for personal or financial information – do not respond. Additionally, avoid clicking any links, or downloading attachments from suspicious text messages.

Phone Scams

If you receive an unexpected call from someone claiming they’re from the ATO, threatening you with arrest, asking for money to pay back a refund or debt, or asking for personal information – hang up. It worth noting also that the ATO will call from a private number – not from Caller ID.

Ask the ATO

If you’re concerned about the authenticity of a call or text from claiming the ATO, hang up and call the ATO on 1800 008 540. You will also find detailed information about various scams on their website.

Remember, that the ATO will never –

• Ask you to pay your debt into a non-ATO bank account, via gift cards, or with cryptocurrencies
• Threaten you
• Ask you to pay a fee in order to receive a refund
• Ask you for personal information via email or SMS
• Ask you to download, or open attachments, from the Internet

They Say That Money Talks – So What Is Yours Saying?

Most of us know that our superfunds invest into many industries and shares – but your superfund investments are likely funding activities that are not sustainable and may be contrary to your ethics.

If investing is something that you are interested in, but you don’t want your money to support industries or practices you don’t agree with, then ethical investing may be what you’re looking for.

What Is Ethical Investing?

Ethical investing refers to using one’s own ethical principles as their primary filter for where they invest their money. This obviously comes down to the individual’s perspective, however, it can generally be summed up as thinking with your moral compass, rather than what gives you the best returns.

Common denominators are shared in ethical investing. For example, some funds align with an investor’s personal beliefs towards the environment, such as those ensuring tree replanting, or clean energy. Others, meanwhile, may align them with religious, or political precepts. For example, some investors may choose to eliminate specific industries, such as sin stocks, which are companies that are involved with traditionally unethical practices, such as gambling, alcohol, or firearms.

So, how can you make money while making the world a better place?

History of Ethical Investing

Ethical investing has its roots originally in religion. In Biblical times, ethical investing was mandated by Judaism. Tzedek (trans: justice and equality) called for justice to correct the harm that humans cause. To have money, or own property, carried responsibility to prevent immediate or potential harm.

Later, in their 1758 Yearly Meeting, The Quakers decreed those members participating in the slave trade – the buying or selling of humans – would be ex-communicated. They further prohibited members of the clergy from spending money on the slave trade or leasing their ships for use in the transatlantic slave trade.

In 1760, John Wesley, one of the original founders of Methodism, preached the importance of refraining from investing in industries that harm human beings, such as chemical plants and mining. He outlined in one of his sermons one the basic tenets of ethical investing that we “ought not to gain money at the expense of life or by losing our souls.”

By the 20^th century, the developments in ethical investing mirrored the political climate and social trends of the time. For example, ethical investors in the late 1960’s and early 1970’s began focusing on organizations that supported unionist movements, and further shunned companies that supported or profited from the Vietnam War. The 1960’s also saw a rise in Islamic banking, which shuns investments in alcohol, gambling, and pork, alongside prohibiting interest.

The 1990’s saw ethical investments narrowing down on environmental issues. Ethical investors moved away from organisations that profit off coal, fossil fuels and deforestation and placed their money into companies that supported clean and sustainable energy. Today, ethical investing continues to primarily focus on impacts on the environment and society, sometimes referred to as green investing.

Benefits of Ethical Investing

Thanks to impact portfolios offered by a plethora of sustainably mutual funds, ethical investing is easier than ever. Not only that, but a study by AMP found that the median ethical investment manager has outperformed the S&P/ASX 200 Index over the span of five years.

There is evidence to suggest that ethical investments may offer lower levels of market risk than traditional investments, even in volatile markets such as the COVID-19 pandemic, or the outbreak of the Ukraine/Russian war. According to Morningstar data, 24 out of 26 ESG index funds outperformed comparable conventional funds during the first quarter of 2020.

If you need more reasons to switch your investments to an ethical fund, then consider this – You can live in alignment with your values. By investing in an ethical way that is aligned with your values and beliefs, you’ll be making money and using your money to improve society. You can sleep better at night knowing this.

How to Build an Ethical Investment Portfolio

Building an ethical portfolio is very simple. Here’s how to start investing ethically:

1. Decide how involved you want to be

When it comes to building an ethical portfolio, you can either choose to handpick specific investments and monitoring them over time, or you can get some help.

If you want to build your own portfolio, you can open a brokerage account, and use screening tools to find the right funds for your portfolio. If you don’t already have a brokerage account, here’s how to open one.

If you want assistance building a portfolio, that’s fine too! Many individuals go through a robo-advisors. Robo-advisors use algorithms to build and manage investment portfolios based on your goals, and your ethical preferences. They are also much cheaper to use compared to traditional advisors. Click here to view some robo-advisors that offer socially responsible portfolios.

2. Figure out what’s ethical to you

Before you start splurging, take some time to outline what ethical investing means to you. Does a construction company still count as ethical to you if it includes reforestation initiatives for every tree it cuts down? Knowing what industries, you want to support and which you want to avoid will make it easier to include or exclude investments.

3. Build your portfolio

Once your brokerage account is set up and you have figured out your goals, you can start building a portfolio. There are two simple ways to add ethical investments to your portfolio:

• Buy ethical stocks that you align with your values. If you’re new to this, you can check out Nerdwallet’s simple how to guide for buying stocks.
• Buy through Exchange Traded Funds (ETFs) – Click here to read more about how to do this here.

As Always, Check The Product Disclosure Statement (PDS) Before You Invest

The PDS that comes with all investing portfolios isn’t just there for show. It contains a lot of valuable information that you’ll need to know about your investments, and about your own portfolio, including:

• what index, sector or asset the ETF or stocks returns aims to replicate
• the fees and costs of investing
• the risks over the short, median and long term
• how to make a dispute or exit from your plan.

Thinking of investing ethically with your SMSF, or as a side hustle? It’s always wise to seek financial advice first. Auditax Accountants can help you make the best choice for your SMSF or goals. Call us on (08) 9358 5599 and ask to speak with one of our specialists.

An Ultimate Guide of SMSF Investments in Cryptocurrency

 Self Managed Superfund or SMSF is a private fund, introduced and designed only for those people who want to control and manage all their ongoing investments and long term retirement returns, and nowadays you also can use SMSF to buy and invest in digital cryptocurrencies including Bitcoin, Ripple, Ethereum and others. 

But, before jumping into this blockchain industry, you need to clear some of the doubts to understand the market and to perform the task, reading and exploring the topic is a must. 

That’s why we have crafted this guide through which we show you how you can Buy Cryptocurrencies using a Self Managed Superfund. So just stick to this blog post and dig all you need to obtain regarding the advanced way of digital money investments. 

“A Self Managed Superfund (SMSF) is a retirement fund that is chosen by some investors to give more control to their retirement plans but it has some restrictions around investing which you need to know before making a decision. “

How to Buy and Invest in Crypto Using SMSF? 

Before delving into the vast array of SMSF investments, it’s important to clear some basic things about Cryptocurrencies and other digital money platforms; you should know what they are, how do their markets work and other important aspects. 

So let’s dig into all the questions which may occur in your mind before making Self Managed Super Fund investments in Cryptocurrency. 

Cryptocurrency- Step-by-Step Explanation  

A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are based on decentralised networks based on blockchain technology. I.e. They use a distributed ledger enforced by a disparate network of computers. 

A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.

Note: Choosing a cold wallet with a private key, rather than a default wallet offered by crypto exchanges or a hot online wallet, will provide additional security for your crypto investments. 

How to Make Cryptos investments through SMSF?

First of all, you need to create an online trading account and join an online exchange. Now sign up in your SMSF account using your login credentials. Now it is time to get a verified business account. 

In the second step, you need to fund your account and there are several methods you can use to perform the task. But remember always choose a verified and trusted online exchange which provides you with a secured payment method. 

The exchange for the SMSF is identified as the SMSF trustee of the owner of the account. So remember to link the right bank account to both SMSF exchange accounts.

Ideally, you should set up a single digital wallet for all your fund’s cryptocurrency transactions to make record-keeping as simple and transparent as possible.

Note: There are dozens of digital wallet providers, but only a handful is suitable for SMSF investors.

Now after checking and accepting all the details including the email address used for SMSF, ask for permission to fund your account through SMSF auditors. You should need to follow the SIS act and regulations to complete this process. 

Invest Strategy and Fund’s Governing Rules

As per the reports, in 2014, the Australian Taxation Office (ATO) ruled that cryptocurrencies are a legitimate form of investment for SMSFs. It has proposed the following set of new rules and conditions.

• They are allowed for under the fund’s trust deed
• They comply with the fund’s investment strategy
• They comply with all relevant super legislation, just like any other SMSF investment must do. For example, SMSF cryptocurrency investments must be:
• Held in the fund’s name (not in the names of individual fund members)
• Valued according to ATO guidelines (explained later in this article)
• While the number of SMSFs investing in cryptocurrencies is rising, the latest ATO statistics show the value of cryptocurrency assets held by SMSF was $137 million in June 2020. That’s a drop in the ocean of total SMSF assets of $733 billion.

What is the Sole-Purpose Test? How does it link to Crypto?

The sole purpose test needs to be met in order for a Self Managed Superfund to be eligible for tax concessions. Not only that, failing the sole purpose test can not only mean losing the concessional tax treatment for the SMSF, but also civil and criminal penalties for trustees. In order to satisfy this test, you will need to ensure that neither you, nor anyone else can benefit from the investment decisions you make in your SMSF – ofcourse, other than the SMSF itself benefiting from your investments.

So, as you guessed it – keep your SMSF Crypto account separate to any personal investment accounts to ensure you do not fail the Sole-Purpose Test.

Note: Like all SMSF investments, your SMSF cryptocurrency must be kept separate from your personal cryptocurrency assets.

Tax Consequences and Valuation 

ATO considers all the cryptocurrencies as assets because when you sell digital coins, you generate more profit leading to you incurring capital gains tax. Conversely, you can offset your capital gains through capital losses. These are the tax consequences you will get after investing in digital currency through SMSF. 

While talking about the valuation, you should know that any crypto assets held by a super fund will also be valued. It’s a legal requirement for SMSFs to value their assets according to ATO guidelines as part of their annual reporting, and cryptocurrencies are no different. They must be valued at their current market rate as at midnight of June 30 at the end of each financial year – as opposed to stocks where you would get the market rate at the time of the market closing. 

What is the value of cryptocurrencies?

Like any currency, cryptocurrencies only have value if enough people recognize them as an acceptable form of payment in exchange for goods and services. And like any currency, the value of cryptocurrencies can rise or fall over time based on the forces of demand and supply as well as investor sentiment.

For example, a single Bitcoin was worth $458 in September 2014. Three years later the price hit a peak of $25,506, before dropping back to earth. In October 2020, bitcoin was trading around $15,000. As of November 2021, the price of a single Bitcoin is around the $80,000 mark. This makes cryptocurrencies highly volatile and may lead to either extremely large gains or losses.

“That is not to say that cryptocurrencies do not have a place in a well-diversified SMSF investment portfolio. They are best thought of as an alternative asset class with little or no correlation to traditional asset classes such as shares, property and bonds. But diversification and knowledge are keys to reduce potential risks.” 

What are some of the risks of SMSF cryptocurrency Investments? 

Cryptocurrencies are not legal tender in many countries, even though they can be used to pay for goods and services if a seller is prepared to accept them. It simply means that cryptocurrencies do not have the backing of any bank or the Australian Government – unlike the Australian dollar, which is backed by the Reserve Bank and the Australian Government. 

So investors are unlikely to receive government support if a cryptocurrency they hold ceases to exist for any reason. Digital currency can also potentially be stolen from your fund’s digital wallet by online hackers, though you can (and should) arrange for insurance against this happening. 

How to find instant and round the clock SMSF Solution? 

Investing in cryptocurrency using your Self Managed Superfund is not a hectic task but at the same time, it is not the bread and butter of many seasoned investors. So, you need some sort of expert advice to finish the task sometimes and that is where you need to connect to the trading professionals. There are multiple traders and investors you can find but the problem is how you can choose the best and trusted one? 

Don’t need to think much, we also offer a blend of services related to SMSFs and cryptocurrencies so, you can get in touch with our team of SMSF advisors to find out more about how you can invest in Crypto through your SMSF and what the key limitations are.

The Final Thoughts- 

After gathering a lot of advanced information from different sources about Self Managed Superfunds and Cryptocurrencies, we hope to have cleared all your doubts related to digital money and how you can easily buy and invest in Cryptocurrencies through SMSFs. If you still have any doubts, contact us today for expert advice. 

Do you plan to become a SMSF trustee sometime in future? If yes, then you must make sure that they don't incur disqualification from being an SMSF trustee or director. There are some circumstances which may make a person disqualified even if such person landed in such circumstance unknowingly. Let us discuss this in detail. 

What constitutes "dishonest offence"? 

A person can become disqualified from becoming an SMSF trustee or director if they are convicted of any offence. This holds true irrespective of the fact whether the offence is committed in Australia or outside Australia. Another important fact to note is that the disqualification applies irrespective of the age at which the person is convicted. This means that even if a youth is committed of an offence before attaining the age of 18, such youth becomes disqualified from becoming the member forever. 

There is no guideline in the SMSF laws as to what constitutes "dishonest offence". However, ATO has stated some examples for which convictions counts as dishonest offence, such as: 

• Theft 
• Fraud 
• Illegal activities 
• Illegal dealings 

Even if some convictions are not recorded by the court on the grounds of a person's age or the non-availability of conviction publicly, then also disqualification can arise. 

The seriousness of the disqualification can be understood from an example found in the Explanatory Memorandum of the legislation. A minor aging less than 18 years convicted of shoplifting 20 years back was declared to be involved in an offence including dishonesty and thus disqualified to be an SMSF trustee/ director. 

Are there any exceptions to disqualification?  

As a general rule, a person convicted of a dishonest offence is disqualified for the entire life. However, there are some exceptions to this rule in those situations where "serious dishonest conduct" is not committed. Serious dishonest conduct refers to those offence where the penalty involves an imprisonment term of more than two years or a fine of more than 120 penalty units ($25,200 for year 2019). 

If you are convicted of an offence not being serious dishonest conduct, then you can make an application to the ATO and request for the waiver of disqualification. Further, the application has to made within 14 days of the conviction. If there is any good reason for the delay made in making application, then the ATO might consider such delayed application. 

What happens when disqualification is attracted? 

When an SMSF trustee incurs disqualification, then the same shall be notified by the trustee to the ATO immediately. If the SMSF trustee continues to be the trustee, then it will be counted as a serious offence for the trustee that can bring along significant criminal and civil penalties.  

Another important thing to note is that even a person's legal representative is restricted from becoming a replacement trustee or director. The disqualified person is ceased to be an SMSF member for entire life within a period of 6 months of the conviction. An SMSF is required to restructure the fund to make good the trustee/member rules within this grace period of 6 months. The result is that the member who is convicted of a dishonest offence has to immediately cease being the SMSF trustee/ director, however, the SMSF gets a grace period of 6 months to comply with trustee/member rules. 

What to do when ATO doesn't provide waiver to an SMSF member? 

There are few things that a member can do if you have incurred disqualification and the ATO disapproves your application for disqualification waiver: 

• The account balance of the disqualified member can be rolled over to a large (Australian Prudential Regulation Authority i.e., APRA) superannuation fund. 

• The SMSF can be converted to a small APRA fund. For this, an APRA approved trustee has to be appointed. 
• Those disqualified persons who have either retired, attained the age of 65, or fulfilled some other condition of release along with a nil cashing restriction are allowed to withdraw all the benefits lying with the SMSF fund.  

The disqualified person needs to make sure that these corrective actions are taken within a period of six months from disqualification. 

Conclusion 

Considering the serious consequences of disqualifications, it is important that the SMSF trustees and the auditors frequently monitor whether the conditions of disqualification are attracted for any member or not. The SMSF advisors should also consider whether the children of SMSF members can be disqualified and establish succession plans accordingly. 

While setting up an SMSF, one of the decisions to be taken is regarding the selection of trustees. You need to decide whether individual trustees should be appointed or corporate trustees. While you might have heard that corporate trustees are beneficial against individual trustees, you might wonder, why? Apart from answering this question, this article also considers why the constitution of a corporate trustee is important and what should be included in an SMSF constitution. 

Why opt corporate trustee over individual trustee?  

There are many reasons why a corporate trustee is preferable to individual trustees for an SMSF. 

Here are some benefits that a corporate trustee has over individuals: 

• Succession planning becomes more convenient when corporate trustee is there. Further, the SMSF is able to meet the trustee/member rules easily; 
• Fund has to deal with less administration and paperwork in case there is a change in members of the fund. The corporate trustee continues to be the trustee even if a new member comes in or leaves the fund; 
• There is more degree of asset protection. If any fine is imposed to the SMSF, then the corporate trustee will bear the same. Also, since a company has limited liability, the directors don't become personally liable in case company's asset fall short; 
• In a case where there are members oversees, it becomes easier to manage such overseas members and deal with SMSF residency issues; and 

• You SMSF attracts comparatively lower administrative penalties under SMSF laws. 

Another important aspect of a corporate trustee is that the company should be a sole purpose company. This means that it should act in that role only as the trustee of an SMSF. 

Why is a constitution important? 

The constitution is the key foundation document for any company. This document regulates the activities of the trustee company along with the following: 

• who has the power to appoint and remove directors; 

• who can be appointed or removed as a director; 
• Manner in which decisions are made by the company including how meetings are conducted or resolutions are passed; and 
• what powers the shareholders and directors have. 

Where an SMSF has individual trustees, most of such issues are dealt as per the governing rules of the fund. However, where a corporate trustee is there, the constitution of the company regulates these issues. 

While a company has an indefinite lifespan, there can be many developments that might make a constitution outdated. You should review each constitution at least every ten years. However, some legal or other changes might make it necessary to review the constitution more frequently. 

In case you are curious to understand how constitution should be prepared, here are some key points to consider that should be covered in the constitution of a corporate trustee. 

Nomination of successor director 

A well drafted constitution can ensure that the right person is in control of the company at the right time. When a director dies or loses capacity, they no longer remain the director of the company. In such events, it becomes difficult to appoint a replacement director. That's why proper pre-planning is required to manage such issues to ensure that the trustee/member rules are satisfied and that any formalities regarding death benefits are met. 

Some people believe that a person's legal representative or an executor can take up the role of director of a corporate trustee upon their death or loss of capacity. However, this is not true! Without any clause in constitution, the decision to appoint a replacement director requires the shareholders' approval. 

To tackle such situations, constitution should contain a clause to allow a director to appoint a person to act as a director in the event of such nominating director's death or loss of capacity. Doing so allows the successor director to take up the responsibility of directorship immediately when the nominating directors dies or lose capacity. This provides greater certainty regarding the ongoing control and management of the superfund. 

Issue of guardian share 

Issue of guardian share in the company can be useful for an SMSF to ensure that a person can exercise ultimate control of a company and resolve disputed issues. For example, a constitution can mention that a 'Guardian Shareholder' must agree to any decision taken by both directors and shareholders before any resolution is passed. 

Flexible constitution for lower ASIC fees 

A company that solely acts as an SMSF trustee gets to pay reduced annual ASIC fee. It is important that a constitution has flexible wording that allows the company to take on another role also without letting go the reduced fee entitlement. Example, a constitution might allow the company to become the trustee of a family discretionary trust, without requiring any change to the constitution. Some constitutions are strictly written and a variation is to be made if the company takes some another role. In contrast, others have flexible wording that allows other roles to be taken on without any need to amend the constitution. 

Use of company in SMSF investment structures 

Another benefit of a corporate trustee is that a company can be used as part of an investment structure or entity that an SMSF invests in.  

Consider a situation where a company acts as the trustee of a unit trust whose units an SMSF acquires. When the constitution of the corporate trustee of the unit trust and the deed of the unit trust are properly drafted, then it is possible for an SMSF to become a 50% investor in a unit trust along with an 'unrelated' party. Doing so doesn't attract any in-house assets issues. It should also be made sure that the constitution does not allow any one party to 'sufficiently influence' or 'control' the company/trust. 

Lesser formalities and usage of technology 

Sometimes some constitutions are such old or poorly drafted that it takes few formalities to be complied with even for performing basic functions. For example, a constitution might require that any written notice should be sent by post only. A constitution should be flexible enough to allow the use of technology and should place less formalities.  

Conclusions 

A well drafted company constitution gives opportunity for proper succession planning in an SMSF by providing greater certainty in the event of the death or loss of capacity of a key person. In contrast, poorly drafted constitutions can create a path for many risks and other consequences including costly legal disputes. 

Background 

You planned your retirement in advance by investing in super, but due to some financial crisis you need to withdraw funds early? If the answer is yes, then you would be happy to know that there are many methods through which you as a fund member can access your superannuation before retirement without defeating law. With the ongoing effects of COVID-19 pandemic, businesses all over the world have been impacted and employees have suffered salary cuts leading to financial stress for all. During these difficult times, you might have come across one or the other scammer luring people to set up an SMSF and unlawfully access superannuation benefits before even meeting the condition of release. ATO has advised to stay away from such scammers. 

 When can you access your superannuation funds? 

 It's true that SMSFs allow its members to access funds. However, this liberty to withdraw superannuation benefit comes only upon the fulfillment of the condition of release. The responsibility to ensure that this condition is satisfied lies in the hands of the SMSF trustees. The most comm 

The most common conditions of release include retirement or attaining the age of 65. However, there are some other situations where members can access their superannuation benefits before the specified time.  

 What happens when you don't meet condition of release? 

When superannuation benefits are withdrawn by the SMSF members without meeting the condition of release or following the applicable cashing restrictions, it can cause serious compliance and tax consequences for fund trustees as well as the members. For example, ATO may consider the payment made to the member as a loan or even illegal access to superannuation benefits. If the evidences indicate that the member is obligated to pay back the superannuation benefit to the SMSF, then it is considered that the SMSF trustee has given a loan to its member or relative. Due to such non-compliance of SMSF laws, the ATO might impose administrative penalties. Alternatively, the ATO might treat the payment as illegal access to superannuation benefits, since no repayment obligation exists. The tax implication would be that the superannuation benefit would be included in the member's assessable income. 

 What happens in case of temporary incapacity? 

A member can be said to have temporary incapacity in the case of physical or mental illness that has made the member unemployed but doesn't count as permanent incapacity. For example, suppose a member who works as a farm assistant for its employer had to stop working for 4 months due to an injury. 

Condition of release in case of temporary incapacity 

In order to compensate a member for the lost income due to temporary incapacity, an SMSF member who meets the condition of temporary incapacity is allowed to access the superannuation benefits. This helps the members to get relief for the income that they lost due their illness or injury.  

However, there are some restrictions (known as "cashing restriction" with respect to form, amount, and period for which such benefits can be received on the grounds of temporary incapacity. 

The cashing restriction includes the following areas: 

Form: A member may receive an amount that reflects the reward that such member was getting before becoming ill or injured. Further, the amount is to be paid as a non-commutable income stream (NCIS) I.e., it is to be paid in instalments. The payouts can be made only from those contributions that is greater than the superannuation guarantee threshold, insurance or from reserves lying with the fund. It can't be made from the amounts related to the member's member-financed or mandated employer-financed benefits and the growth earned on such amounts. 

Amount: As we stated earlier, the amount that members are allowed to access can't exceed the maximum reward that members were receiving from the employment before becoming ill or injured. In case of income protection insurance policies certain portion of the pre-injury income stream is paid by the insurer (say 75%). Moreover, such policies might include a clause that decreases the portion of insurer's obligation to the extent the insured members gain other income. Let us take a case where an insured member has a 70% monthly income protection insurance plan in addition to superannuation, then such insurance payout would be reduced by the monthly amount that is paid by the SMSF. 

 Time: The period for which the member can receive the amounts starts when the employment income of the member ceases due to the event of temporary incapacity and stops when the members take back the employment that was held by the member prior to illness or injury. 

 Is illness from COVID-19 covered? 

Australians who get ill from COVID-19 or get exposed to any other illness or injury, may claim income support from their SMSF on account of temporary incapacity. However, it is important that a member keeps in mind the cashing restrictions. Availability of non-minimum benefits such as income replacement insurance, reserves or excess employer contributions are some factors that may affect the amount of NCIS.  Further, the start and end period for the NCIS might be difficult to find out where the employment arranged of the member has changed after the incapacity occurs, instead of ceasing such as reduced working hours. 

Conclusions 

Here are some conditions that you have to consider to determine whether a member has met the condition of release in the event of temporary incapacity: 

• Whether the physical or mental illness caused a member to stop work temporarily. 

• The amount of the NCIS that can be paid and whether the payout can be funded out of the member's superannuation benefits. 
• The expected time period after which the member is likely to return to the employment. 

If the SMSF trustees are not sure about these facts, then it's better that they seek legal advice. Otherwise, the consequences can be serious for the SMSF trustee as well as the members.