COMPLIANCE
I’m a member, get me out of here
Exiting an SMSF is not necessarily a straightforward exercise when the fund services multiple members. Michael Hallinan examines the relevant processes.
MICHAEL HALLINAN is superannuation special counsel at SuperCentral.
62 selfmanagedsuper
Portability is the right of a member of a superannuation fund to transfer their interest from one fund to another. Portability is not an inherent feature of superannuation funds. Employersponsored funds did not permit an interest to be transferred unless and until the member ceased employment. Since 1 July 2004, Part 6.5 of the Superannuation Industry (Supervision) (SIS) Regulations has provided super members with the statutory right of portability subject to some exceptions. Initially interests in SMSFs were also excluded from portability. However, since 1 July 2018, SMSF members have had the same portability rights as members of retail and industry funds. Portability, in the context of public offer funds, does not give rise to fund stability for various reasons. These include membership size of such funds, the large net cash inflows, the ability to finance transfers from cash flow rather than asset realisation, and the relative insignificance of even large member balances among the total value of such funds. In contrast, portability in the context of multi-member SMSFs could give rise to very material issues of fund stability as these funds do not have the
spread of members or significant cash inflows and each member may hold a significant portion of the total value of the SMSF. Additionally, multi-member SMSFs are exposed to additional stability arising from the following features: • loan liabilities arising from limited recourse borrowing arrangements (LRBA), • holding assets that are business critical in relation to the members, • holding lumpy assets, • holding illiquid assets, • having members who are business associates, • having members who are married couples, • having members who are family members, and • having members in different phases of super – some in accumulation phase and others in drawdown phase. The stability of a multi-member SMSF could be jeopardised if a member decided to exercise their portability rights, placing the fund in the position of having to find cash to implement the transfer Continued on next page
