Can a SMSF member have a nil balance?
Yes, it is possible in theory but very unusual. Being a trust a SMSF will be established when an asset is held on behalf of a member. An SMSF is generally established when a bank account is first opened as this will be the first asset the fund will hold which could be as little as $1.
Some SMSF deeds specifically allow a member to have a nil balance Some deeds will allow a member to apply for membership but will not be a member until they have a balance which is usually after a contribution, or a rollover is received.
Read your fund’s deed to find out if a member can include a member with a nil balance.
ATO View
The ATO view nil member balances as a possible indicator of non-compliance issues with regard to the fund’s administration. A member who has a nil balance for a number of years would raise a red flag to the ATO. A nil member balance can indicate that the fund may not be set up correctly and may fail the definition of a SMSF. This means the fund could lose its tax concessions and the employer may not be able to claim a tax deduction for super contributions made to the fund. The ATO will not accept the lodgement of an annual return (tax return) if the fund has no assets unless it occurs in the year the SMSF is being wound up.
Let us look at why a member’s balance could have a nil balance.
A SMSF member’s balance can be nil in the year it is being wound up.
The most likely scenario when a member balance is nil includes when a fund is first established, and contributions or rollovers have not been received by 30th June and when a member is added just prior to 30th June.
As the members age their adult children may be appointed as trustees/directors to assist their parents in managing the fund. However, they also must be members of their parents SMSF but may have their own super funds and don’t want to contribute or rollover their super benefits to their parents SMSF.