ATO Issues Draft Determination on Benefit Payment by Cheque

The long and the short of this Draft Determination is that SMSFs will be treated as paying a benefit on 30 June if the benefit is paid by why of a cheque dated 30 June.

To be effective, the Trustee will have to take reasonable steps to ensure that the cheque is provided to the member, the member will have to present the cheque as soon as practicable and the cheque will have to be honoured.

The draft determination gives an example of a payment of benefit as at 30 June by the trustee giving a cheque to a member and the cheque being banked 5 days later.

The draft determination applies to both lump sum and pension benefits.

The draft determination could be used to ensure that the minimum payment requirements applying to pensions are satisfied by the trustee completing a quick check in the last week of June and paying any shortfall by cheque dated on or before 30 June.

However three important caveats apply to the draft determination.

The first is that a delay in the member presenting the cheque will give rise to the inference that there was no intention to pay a benefit at the time the cheque was prepared or given to the member.

The second is where the trustee at the time of writing the cheque, has insufficient funds to honour the cheque.  This again gives rise to the inference that there was no intention to pay the benefit.

The third is where the cheque is posted dated (and so cannot be presented until the relevant date has occurred).  Again this will give rise to the inference that there was no intention to pay the benefit at the time the cheque was issued.   If the post-dated cheque is presented and honoured, the payment will generally be taken to have occurred at the time of presentation of the cheque.

The ATO reference for the draft Determination is SMSFD 2010/D1 and can be obtained form the ATO website.