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Hello,
I'm auditing a fund that has multiple years outstanding and terrible record keeping.
The Fund owns life insurance policies (and income protection) for husband/wife members however the records show the husband had a nil balance for a number of years (which per the trust deed makes him cease to be a member) and resigned as a director of the trustee company before the first year I am auditing. So now the SMSF owns a life insurance policy & an income protection policy for someone who is not a member.
The previous auditor prepared an unqualified report and no issues were noted.
I figure the insurance policy contravenes the sole purpose test...as it is not saving for the retirement of the sole member (wife). Is this the same conclusion you would reach?
Also the accountant preparing the job is asking me how they should treat the payment in the financial statements. Expense it as insurance but don't claim a tax deduction for it; treat as early access payment?
Any help will be greatly appreciated.
Julie
edited by Julie Flatman on 13/10/2020
Julie Flatman
Thanks for you comments Michael, i really appreciate another point of view.
Yes, I've seen lots of name errors for insurance but not quite like this. The policy is definitely owned by the Fund for the husband. I completed an ASIC historical search to determine the husband had been a director but resigned well before this policy was even taken out! The wife is not in pension phase. I did consider treatment as a loan but since the policy is clearly owned by the SMSF i didn't see it as their intention for it to be paid back.
I've been told by the accountant that the husband & wife genuinely thought they were both members and didn't realise until recently (some years later) that he is not a member and has a zero balance. I wonder at the advice being given by the broker that he did not know this at the time he recommended the policy.
Julie Flatman
Hi Julie, I have had a few of these, more having the wrong insurance policies and incorrect names. I would double check the current ASIC return to see if the husband has been removed as director. Depending if the wife is in pension phase you could possibly treat them as pension payments, if not it would be treated & breached under s65, and account as a debtor-loan to members and would have to pay back with interest. Obviously you or the accountant will need to contact the wife so they can fix the policy. Cheers MC
Michael Carroll