Bank Account Overdrawn

One of the important investment restrictions imposed on the trustees is a general prohibition on any borrowing by the fund. Borrowing means a loan or any other kind of advance from a bank, other lending authority or even from a member or a relative. It also includes a bank overdraft, whether specifically approved by the bank or not.

Many banks will allow an account to be overdrawn by a small amount, without any formal overdraft approval. The bank will honour a cheque that causes the account to be overdrawn and charge a fee for so doing. If the overdrawn account is not quickly restored to credit, interest will also be charged.

The Tax Office view, one that is supported by the legislation, is that an overdrawn account constitutes a borrowing within the meaning of section 67 (1) of the Superannuation Industry Supervision Act.

An overdrawn account should be immediately restored to a credit balance. It must be reported by the auditor in the audit report. Unless the amount of overdraft is very small, the audit report would normally be qualified as well.

In most cases, the ATO will not take action against the trustees, provided the overdraft was quickly corrected and the trustees have taken steps to prevent an overdraft from happening again.

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