SuperStream is a government mandated system designed to streamline superannuation transactions for contributions and rollovers between funds. Although it has been around for over three years now and enhances efficiency (when done right), there are key tips and traps to consider for fund members when it comes to rollovers.
So, what does best practice for a superannuation rollover look like? Let’s break it down from the start.
Steps to rollover monies out of your SMSF
SMSF trustees have three business days to action a rollover from the date in which they receive the rollover request and they have all the necessary information to enact the rollover. To ensure the rollover process goes smoothly there are steps the member can take prior to initiating the rollover with the SMSF trustees:
1. Does the member have sufficient balance in the SMSF for the rollover?
Interim SMSF accounts may need to be prepared prior to the rollover to ensure the member has a high enough balance for the rollover to take place. This will involve the revaluation of all fund investments to their market value including any properties and unlisted investments. By doing so, the income tax and realised capital gains tax to-date is captured in the interim accounts.
2. Is there enough liquidity in the SMSF to action the rollover and are there daily limits on bank transfers?
If the rollover is to be made via cash (as opposed to in-specie transfer of assets) then the SMSF needs to have sufficient cash ready to make the rollover. If there isn’t enough cash, additional time will need to be factored in to liquidate investments – this may be relatively quick for, say, listed shares but not so for lumpy assets such as property.
Also check if the SMSF bank account has daily transfer limits which need to be increased prior to the actioning of the rollover, so that the rollover can be paid in one transfer amount.
3. SMSF verification and confirm member details
The SMSF Verification Service (SVS) validates the receiving fund details including the confirmation that the individual is a member of that fund – this is an important cyber security measure to ensure the monies are transferred to the correct super fund and for the right person. This includes the confirmation of the person’s full legal name, current address, Tax File Number as well as the SMSF’s ABN, Electronic Service Address (ESA) and bank account details. This SVS check automatically occurs via the administrator’s SuperStream compliant software.
4. Initiate the rollover out via SuperStream and make the payment
Once the member’s balance has been ascertained, the rollover amount can be initiated via SuperStream by the SMSF administrator. On the same day, the rollover amount must be paid to specified bank account with the narration being the unique Payment Reference Number (PRN) as shown on the SuperStream notice.
5. Once the rollover has been completed, the individual should follow-up with the receiving fund to ensure the rollover monies have been received.
What are the common traps and how to avoid them?
- Not using PRN when making the bank transfer can delay the rollover process as the receiving fund uses this number to match against the monies being rolled over.
- Failing to increase the SMSF’s daily transfer limit can inhibit the rollover process because the rollover amount must match exactly the SuperStream notice amount. If there are multiple transfers being made, then each of them will have to have matching SuperStream notices.
- Not informing your administrator prior to actioning a transfer from the SMSF.
This is the most common mistake as trustees don’t realise the importance of ensuring the rollover goes via SuperStream and sometimes this is not discovered until the following financial year until the administrator comes to prepare the financial statements.
The consequences of this can be not only be detrimental to the member but also to the SMSF, including the following:
- the receiving fund mistakenly identifying the funds as a non-concessional contribution instead of a rollover – this may result in excess non-concessional contributions depending on the amount and/or if the member has already made non-concessional contributions during the financial year;
- potentially illegal early access by the member if they have not yet met preservation age and/or a breach of the payment standards in Part 6 of the SIS Regulations, specifically regulation 6.17 resulting in the auditor having to submit an Auditor Contravention Report (ACR);
- failure to comply with the SuperStream standards can also result in an ACR and a penalty of $4,400 per trustee for the FY2022);
- the SMSF rolling out more the member’s balance as interim accounts were not completed – this may result in a Part B audit qualification and the requirement for the member to roll back some of their monies back into the SMSF.
What happens if the rollover fails?
One would think since as the SVS process ensures everything matches prior to the rollover, then it should also identify the errors if the rollover fails, but alas that would be too simple.
The fastest way to identify what has gone wrong is for the member to call the receiving fund and ask them what has caused the error – the administrator cannot tell from their end, why the rollover has failed.
Most often the error is due to the back-end of the receiving fund’s systems not matching the rollover details so it just a matter of sending them copies of the SuperStream notice and evidence of the bank transfer, and they can update their records to process the rollover. Or they may ask for a paper copy of the Rollover Benefit Statement to verify the rollover details. Failing that, the receiving fund will refund the cash to the SMSF, and a new rollover out will need to be initiated.
To ensure that your SMSF is prepared for rollovers, a clear understanding of the process is the best starting point followed by proactive communication with your administrator, so that delays do not occur.
Author – Anna Wong – Premier SMSF Solutions
*Correct as of 29 November 2024
*Disclaimer – Kreston Stanley Williamson has produced this article to serve its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek advice about your circumstances. Liability is limited by a scheme approved under professional standards legislation.
