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Nil member account balances

Check if your SMSF has a nil account balance on 30 June of an income year.

17 July 2022

An SMSF member with a nil account balance on 30 June may indicate issues with the fund's administration.

Overview

There may be good reasons why a member of your self-managed super fund has a nil account balance recorded on 30 June of an income year.

For example:

  • your fund may be newly established, or
  • the member was added to the fund just before the end of the income year.

However, in some cases a nil account balance may indicate your SMSF has not been administered correctly especially if:

  • your fund has only one member, or
  • there are no contributions, rollovers or transfers recorded for a member over several years.

What you need to do

If a member of your SMSF is showing a nil account balance, you should make sure:

  • the fund has been set up correctly
  • the member intends to contribute to the fund in the future
  • you are complying with the super and tax laws.

Even where there are genuine reasons for a nil account balance, a member who is also a trustee (or director of a corporate trustee) of the SMSF is still responsible for running the fund and making sure the super and tax laws are complied with.

The following situations may lead to a nil account balance:

Nil account balances need to be reported a certain way when lodging your SMSF annual return:

Illegally accessed early release of super

If a member recently rolled over their super benefits into a SMSF, a nil account balance may indicate the benefits have been withdrawn from the fund without the member having met a condition of release. This is commonly referred to as Illegal early release of super.

Newly established funds

An SMSF is a type of trust. To legally establish your fund, the fund needs to have assets set aside for the benefit of members. Even if a nominal amount is used to establish the fund until a rollover, transfer or contribution is made, the amount is regarded as a contribution and needs to be allocated to a member.

Therefore, there should always be at least one member showing an account balance of greater than zero in the fund's first year of operation (and later income years).

Fund not structured correctly

If a member has a nil account balance, and there are no contributions or rollovers recorded for the member, particularly over several years, this may indicate the fund has not been set up and structured correctly. The fund may not meet the requirements to be an SMSF under the super laws. For example, a trustee (or director of a corporate trustee) may be incorrectly included, or recorded, as a member of the fund (in cases where your fund has more than one member).

Limited recourse borrowing arrangements

A nil balance may also arise in situations where an SMSF trustee has entered a limited recourse borrowing arrangement (LRBA):

  • that complies with the super laws
  • where the loan balance exceeds the value of the asset acquired under the LRBA because of a decrease in the asset's value.

Lodging SMSF annual returns with a nil balance

You cannot lodge an SMSF annual return for a fund with no assets or no closing member balances, unless it is for the income year in which the fund is wound up.

If a member has a nil opening or closing account balance for an income year, this is reported as 'zero' on the SMSF annual return.

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