Can my SMSF write a cheque for me (as long as I pay it back)?

[Deve]

Hi

I'm looking around at some properties at the moment, and many of them are selling at auction. As a result I will need to come up with a cheque for the 10% deposit on the day.

I don't have a cheque book account (it seems like a waste if this would be the only time I would ever write a cheque) however my SMSF does. Am I able to get my SMSF to write a cheque for the deposit on the day of the auction, and then reimburse the fund on the Monday following the auction?

Ta
Steve

 

[tubs]

No it can't.

 

[Kenster]

I think you can, but you run into the risk of making the fund non-compliant.

I don't know the consequence of this?

 

[Pushka]

You can physically do it but Dont do it! If the fund is deemed non compliant you will be penalised and taxed at the highest rate. Too much to lose! This is not an uncommon problem so I would speak to the auctioner prior to the auction to see what options they offer. And then speak to your Bank to organise something.

 

[geoffw]

Arrange a bank cheque. Or a deposit bond, if that is acceptable.

Before you go to the auction, you can see if the vendor will negotiate terms if you're the successful bidder. They may accept a bank cheque for a predetermined amount.

 

[urban cowboy]

just a note for those following this thread re buying at auction in QLD...

if you are under these circumstances and as Geoff says you approach the vendor with a view to negotiating terms and they agree to vary the standard terms and conditions of the auction...

the auctioneer MUST STATE THE TERMS OF SALE for the auction prior to commencing bidding - so in other words, if for example you get the vendor to allow a finance clause for you to purchase at auction, that offer must be made available to every purchaser at the auction and that condition will be mentioned publicly prior to bidding as part of the pre-auction spiel...

So whilst it helps you out, every other bidder now has the same terms available to them...

cheers
UC

 

[BV]

As I see it, writing a cheque is a way of withdrawing funds from a bank account
and giving it to a 3rd party.

If after writing the cheque you go straight to your bank and deposit the cheque amount into the savings account then it wouldn't be a loan, would it?

When the cheque is presented to the bank they will just take funds that you've put in there yourself.
Would this present a problem at auditing time?
I don't know.
Cheers

 

[Twitch]

Hi

I'm looking around at some properties at the moment, and many of them are selling at auction. As a result I will need to come up with a cheque for the 10% deposit on the day.

I don't have a cheque book account (it seems like a waste if this would be the only time I would ever write a cheque) however my SMSF does. Am I able to get my SMSF to write a cheque for the deposit on the day of the auction, and then reimburse the fund on the Monday following the auction?

Ta
Steve

Steve, I've got a couple of better ideas

1) get another cheque book against one of your existing investment accounts

2) if you don't want to do 1), then go ahead and give them the SMSF cheque at auction time on the understanding that you will turn up at the REA office by midday Monday (all cheques must by law be banked the next business day so Tuesday is too late) to substitute that SMSF cheque for a bank cheque.

Stress that they must not bank the SMSF cheque (although they will have no choice if you welch on producing an alternate cheque).

 

[Pushka]

I wouldnt risk the REA not banking the cheque to be honest. And once a cheque has been presented and cleared, it will appear as a transaction in your SMSF and all transactions, regardless of how quickly the 'loan' might be negated (through the deposit of monies) is still subject to the SMSF rules and must be audited. Unlike loans from company accounts where as long as the money is back in the Bank by June 30 the loans can be ignored.

In SA, each prosepctive buyer can have their own terms negotiated with the auctioneer and these do not have to be 'shared' amongst all buyers (eg settlement terms/deposit amounts etc)

 

[kris]

Isn't there a rule with SMSF that you can loan as long as the loan doesn't exceed 5% of the funds investments? Worth a look.

 

[Mry]

This transaction will breach your duty of care as a trustee and risks the fund becoming non-compliant. The auditor may be required to inform the ATO of this breach, but certainly would be required to do so should you do it again.

 

[yo yo ma]

Can't do it... have a read of the ATO website on SMSF, in particular this publication called,
"It's your money but not yet."
http://www.ato.gov.au/super/content.asp?doc=/content/47067.htm

I think you can, but you run into the risk of making the fund non-compliant.

I don't know the consequence of this?

http://www.ato.gov.au/super/content...001/007/122/011&mnu=2176&mfp=001/007&st=&cy=1
Penalties
There are several options available to the Tax Office if a fund contravenes the superannuation legislation, such as:

• the trustee(s) can be suspended or removed and an acting trustee appointed;
• the assets of the fund can be frozen;
• the fund can be declared non-complying for the relevant year(s) of income; and
• the trustee(s) can be prosecuted under the Civil Penalty provisions of Part 21 of the SISA.

 

[MattR]

Don't do it!

The fund needs to be able to pass "sole purpose test" which is that it was established for the purpose of paying pensions and or death benefits.

If it used for another purpose (that isn't an ancillary purpose) then you can be cained and badly. The fund can lose its compying status and therefore be taxed at 46.5%. So kiss goodbye to half of its assets.

Where clients can't resist the temptation to withdraw funds (that aren't eligible benefits) they way I have got through the breach with the ATO (and it has to be reported!) is to ensure repayment (with interest) of the amount prior to lodgment of the ITR and the Notification of a Breach.