close, and they sound cherooted. John Wasliev replied;
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A: The COVID-19 early release superannuation scheme resulted in many people withdrawing amounts from their super who are now keen to replenish those accounts.
It may have helped if you had accessed this entitlement correctly, say lawyers Cassandra Hurley and Daniel Butler, of DBA Lawyers in Melbourne. Given you did not obtain the COVID-19 release in the proper manner, you do not fit within the usual process of recontributing the amounts you withdrew.
Where the proper form and process was followed, they say, the COVID-19 early release amounts can be recontributed before June 30, 2030, and not be included in the usual
non-concessional contribution cap rules.
In any event, as part of a strategy to rectify your serious situation, say Hurley and Butler, you should offer the Australian Taxation Office – which regulates SMSFs – your willingness to recontribute the money you withdrew together with any investment income this might have earned.
As far as your question is concerned, this can be divided into two parts: how to properly deal with an investment failure; and an illegal early release from super.
Regarding your investment failure, say Hurley and Butler, trustees of self-managed super funds have a duty to act in the best financial interest of their members and to formulate an appropriate investment strategy that considers various factors including cash flow, risk and diversification. This can be found in section 52B of the Superannuation Industry (Supervision) Act 1993.
What is important with investments is that they are not prohibited and are included in the fund’s written investment strategy.
Indeed, just because an investment fails to make money, or loses money, does not mean that the trustee has breached his or her duty to the members or acted contrary to superannuation law requirements.
Further, where a trustee invests in accordance with a fund’s investment strategy, he or she has a defence against a claim for any losses that may be suffered.
This means that an SMSF investing in cryptocurrencies has not necessarily contravened the super rules in the SIS Act, say Hurley and Butler.
But it is important to check that the fund’s trust deed – which sets out the rules for how an SMSF should operate – expressly authorised crypto investments, as without express power in the deed this could give rise to added risk.
You should also make sure you have sufficient and appropriate evidence to show the SMSF investments were made in the fund trustee’s name and not just your personal name. Hurley and Butler say this is an issue that the SMSF auditor will want to check, as not having the investments and records in the correct name exposes you to another contravention.
The ATO, they say, has released specific crypto resources for interested trustees, and it is recommended you review this as it may assist you to prepare your fund’s submission to the ATO.
As far as dealing with the illegal early release of super, Hurley and Butler say people who withdraw money from their super before they are legally entitled to can face serious consequences.
Unlike with the COVID-19 exception, simply recontributing the money taken from the fund will not rectify the situation, and it is likely to be treated as a new contribution unless this is handled appropriately.
It is recommended you seek expert SMSF advice because the consequences can include:
- Becoming a “disqualified person”, which means never being able to be a director or trustee of an SMSF.
- Paying administrative penalties (potentially $13,200 per individual trustee) for each early accessed amount; and
- Paying income tax as an individual on any money withdrawn and further tax penalties, together with interest to the ATO for late payment.
Given your situation, Butler recommends a voluntary disclosure be lodged with the ATO. But before this, your fund’s accounts and tax returns will need to be brought up to date and lodged with the ATO, together with a plan that proposes how you will correct any contraventions.
Regarding the recommendation that you obtain advice from an SMSF expert, Butler says they are most likely to advise you to: wind up the SMSF; offer to recontribute the amount withdrawn together with interest to a suitable large super fund and the lost earnings; and to undertake to promise the ATO that you (and your wife if she was also a trustee/member) will never again become a trustee/member of an SMSF.
You and your wife should also undertake an education course on the superannuation rules and promise the ATO you will obtain professional advice in the future before undertaking these types of transactions.
Taking timely and appropriate action now, says Butler, and doing so with the assistance of an SMSF expert, should assist with minimising any adverse consequences that may follow, as well as hopefully greatly ease your stress.
When dealing with situations such as yours, he says, the courts have repeatedly stated that super should not be regarded as a “bank of last resort” and the super rules must be obeyed and respected.