Ever wondered why you can’t withdraw an asset from your self-managed super fund (SMSF) in lieu of your withdrawal benefit?
It’s because the Superannuation Industry (Supervision) Act 1993 (Cth) (SIS) limits withdrawals on retirement. Only lump sums or pension payments, or a combination of the two can be withdrawn. Trustees who allow more than this would be in breach of the operating standards in SIS and could jeopardise the fund’s complying status (or worse).
Why is it so?
Basically, it’s reasonable. Super is designed to act as a proxy for (or to supplement) the aged pension. If people could take fund assets, such as a residential property, they may be unable to pay their living expenses in retirement. So the “benefit” would defeat the purpose of the super system.
So can a member purchase an asset from the fund?
The simple answer is yes, but conditions apply. The purchase needs to be on arm’s-length terms and supported by appropriate and independent valuations. The transaction must stand up to scrutiny, so ensure appropriate paper trails and documents are in place.
It’s a complicated area - so when in doubt, seek legal advice. We’re always happy to help.