Compliance with SMSF laws can become complicated when a SMSF member and director of the trustee company becomes ineligible to be a company director due to bankruptcy. Special rules again apply for single member funds. In the recent Western Australia Supreme Court decision in GRD v BJD (2018) WASC 374, leave was granted for a bankrupt member of an SMSF to act as a director of the fund’s corporate trustee. Call us on (02) 4929 7002, or email us at enquiries@butlers.net.au, Street Address: Butlers Business Lawyers 1/17 Darby St, Newcastle, NSW 2300, Postal Address: PO Box 957, Newcastle NSW 2300 Australia, Street Address: 21, 133 Castlereagh Street Sydney, NSW 2000, Solicitors Newcastle Corporate Lawyers Newcastle Solicitors Sydney Tax Lawyers Sydney. The proposed amendments address the arguable unfairness of the Hanel decision, and align the liabilities of directors of corporate trustees with other company directors. This potentially leaves the fund in an uncertain position, eg, in relation to who can make decisions in regard to the payment of relevant member’s death benefits. Under the individual structure, the trustees must be members, and vice versa. An SMSF can have either individual trustees, or a corporate trustee. If a company is the trustee of a SMSF, all members of the funds must also be directors of the trustee company. Under Section 206G of the Corporations Act 2001, the court can grant leave to allow certain disqualified persons to act as a director of a corporation. The rising use of corporate trustees by self managed super funds may create unintended consequences down the track. The Trustee of a superannuation entity is required to ensure that the prescribed standards in this legislation are always complied with. The process of replacing a director on the other hand is relatively simple.… Note: anyone over the age of 18 can be a trustee of a superannuation fund unless they are a "disqualified person" under SISA. This means that the expectation of perfect alignment between fund members and … If a SMSF becomes a non-compliant fund, this could result in taxation consequences for all members For example, for every year the fund is non-compliant, the assessable income of the SMSF may be taxed at the highest marginal tax rate. If there is another director who is already a member then the trustee can continue. Simon is the adult son of Jacob from a previous relationship and has been appointed Jacob’s alternate director. This has been changing in the last decade as Trustees see the difficulty of adding or removing members or trustees from a fund. The reason for the creation and separation of the special purpose companies was due to the specific rules as to who can be a director of an SMSF trustee company which may not be satisfied by another type of company, Denham noted. This article provides a general summary only and does not consider all relevant aspects of s 17A and broader superannuation law. Further exceptions to those rules apply in other circumstances. Once the decision is made to use a corporate trustee, the next step is to choose the type of corporate trustee. Also, it is only the members who run the SMSF and as such, all individual trustees or directors of the corporate trustee must generally be members of the fund. Part 2, What to look for in a company constitution. How is an SMSF trustee different to the trustee of a ‘normal’ trust? In contrast, the rules operate slightly differently for sole member funds and relevantly s 17A(2) provides that a fund will be an SMSF if and only if: This means that the expectation of perfect alignment between fund members and trustees/directors does not apply for sole member funds. the member and one other person can be directors of the company. Individual trustee – For individual trustees, you are required to appoint two trustees. Lee has two adult children from a previous relationship. The trustee doesn’t need an ABN as long as the trustee doesn’t run a business (apart from being a trustee). SMSF, if a company is used as the trustee, the member can be the sole director of the trustee company. Each director of the … The Key Differences Between Corporate and Individual SMSF Trustees Anyone over 18 can be a Trustee of an SMSF including a spouse, adult child or friends. When can a bankrupt be the director of a company? Jacob and Rachel are SMSF directors with one share each in the trustee company and the only two SMSF members. They are both SMSF members and directors of the corporate trustee. The trustee–member rules set out the ‘rules of the game’ for the structure of a fund, and in broad terms, the rules require that all members are trustees (or directors of a corporate trustee) and vice versa. Usually, a bankrupt will be disqualified from acting as a director of a company. 5 Pty Ltd v Smyth [2020] VSC 651, if the fund has a corporate trustee — each director of the corporate trustee is a member of the fund and each member is a director; or. The Trustees make the decisions in relation to the Fund. Usually a bankrupt would be disqualified from being a company director, but the court can grant leave for a bankrupt in some circumstances. Other scenarios are two individual trustees or a company as trustee with the sole member and another related person as director. Yes, the issue has been rectified by a change in the legislation. They often do not accept a human POA for the directors that are not able to sign. So if all the trustees (or directors of the trustee) die at the same time, then the SMSF remains an SMSF until the death benefits are paid. The process of replacing a director on the other hand is relatively simple.… Jacob and Rachel are SMSF directors with one share each in the trustee company and the only two SMSF members. Corporate Trustees. Essential Legislative Considerations One key legislated definition of a SMSF that must be satisfied is that each member must be a trustee, or the fund can have a company trustee and each member must be a director… Anyone over the age of 18 is legally able to be the trustee of an SMSF. SMSF’s are, as the name suggests, self-managed. No Member is an employee of another member, unless they’re related; Corporate Trustee is not paid for its services as a Trustee In the 2011 Federal Budget, the Government announced that it would amend the SIS Act so that where the SMSF has a corporate trustee, a parent or guardian may be director of the trustee company in place of the underage member. However, this does not mean that minors cannot be SMSF members. (All section references are to the SISA.). Most SMSFs are established with individuals as trustees – around 80% according to ATO statistics. Alternatively, an SMSF can have a company as a corporate trustee, with each member of the SMSF being a director of the company and each director of the company being a member of the SMSF. When members are admitted to, or cease, membership of the SMSF, all that is required is that the person becomes, or ceases to be, a director of the corporate trustee. Other scenarios are two individual trustees or a company as trustee with the sole member and another related person as director. These are the questions we asked Rani Ghanda of Turnbull Hill Lawyersin Newcastle. Duty of fidelity to the trust 5. The Superannuation Industry Supervision Act is specific, under section 67 A & B that the Trustee must be a different legal entity. For this reason, a corporate trustee is generally chosen for a single member SMSF. The corporate trustee company can have one or two directors, but no more. The Trustee can be an individual, a group of individuals or a Company. A quick primer on trustees. Special purpose companies that will only act as trustee of a SMSF pay reduced annual registration fees. Complying with the terms of the trust 3. Jacob and Rachel are SMSF’s directors with one share each in the trustee company and the only two SMSF members. Corporate trustees are often created for self-managed super funds (SMSF). DBA Network Pty Ltd provides comprehensive SMSF training. If you're the member of an SMSF, you can be the trustee of the SMSF too if you've opted for an individual trustee structure as opposed to a corporeal trustee structure (which is a company). This allowed the fund to meet Superannuation Industry (Supervision) Act 1993 compliance requirements. If the company is running a business, it may need to appoint a new director from time to time. Corporate trustee – A corporate trustee is established to act as the trustee of the fund in which the single member is the sole director. Duty of fidelity to the trust 5. Bankruptcy is the legal process where an individual is declared unable to repay their debts. The trustee–member rules are one of the most fundamental concepts underlying the operation of self managed superannuation funds (‘SMSF’). Expert legal advice should be sought in regard to the trustee–member rules to ensure that any complexities that arise are not overlooked, particularly in the event of a member’s death or loss of capacity or if there is any doubt about the current fund structure. One of the most often encountered yet misunderstood scenarios is what happens to the composition of an SMSF when a member dies. TFN. Not to permit the discretion of the trustee to be restricted by a third party or … There is no requirement on who should be the members of the trustee company although best practice would be that all directors are also members. There is no requirement on who should be the members of the trustee company although best practice would be that all directors are also members. The court will have consideration of surrounding issues such as circumstances of the bankruptcy and the bankrupt’s role in a company. Attorneys as LPRs provide an important safeguard for protecting the interests of members who may lose legal capacity. Under superannuation law, in order to be a compliant single member SMSF: in respect of an SMSF which is established under a corporate trustee structure, the surviving member will be the sole director of the company acting as the corporate trustee; or Looking for an experienced solicitor in Newcastle, Sydney or the Hunter to assist you with a bankruptcy or SMSF compliance matter? Option 2: Company Trustee. In the 2011 Federal Budget, the Government announced that it would amend the SIS Act so that where the SMSF has a corporate trustee, a parent or guardian may be director of the trustee company in place of the underage member. Simon is the adult son of Jacob from a previous relationship and has been appointed Jacob’s alternate director. Kay and Lee are a married couple. More specifically, a single member fund can have an individual co-trustee (or co-director of a corporate trustee) who is not themselves a fund member. These duties include: 1. If the SMSF only holds liquid assets, like cash, the cash can be rolled over into a public super fund in the event the director or trustee goes bankrupt. The trustee of your SMSF is basically the entity that’s legally responsible for the management of your SMSF’s assets and for ensuring your fund complies with all relevant laws. Both In the case of individual trustees, the members are the trustees and for a Corporate Trustee fund, the members are also directors of the trustee company. It is quite common for an organisation or business to be a Trust with a corporate trustee. A person who loses mental capacity is usually unable to be an individual trustee of an SMSF or director of a corporate trustee. Complying with the terms of the trust 3. In SMSFR 2010/2, the ATO outlines its view on the operation of this exception. This depends on the terms in the SMSF trust deed and the company constitution. However, if the SMSF trustee is made up of individuals, each name will be recorded on the investment ‘as trustee for’ the SMSF. This means that all eligible members of the super fund must be appointed directors of the trustee company. If you're the member of an SMSF, you can be the trustee of the SMSF too if you've opted for an individual trustee structure as opposed to a corporeal trustee structure (which is a company).