New duty of care proposal ‘no cause for concern’ for SMSF trustees

From

Peter Burgess

The self-managed super fund (SMSF) sector has no grounds for concern about the proposed introduction of a new duty requiring all superannuation fund trustees, including SMSF trustees, to act in the best financial interest of their members, said SMSF Association Deputy CEO/Director of Policy & Education, Peter Burgess.

Speaking at the Association’s 2021 SMSF virtual National Conference, which began this morning, Burgess said the intent of this new requirement was to enhance the accountability of trustees when executing their fiduciary duties.

“Released late last year as part of the Government’s Your Future, Your Super draft legislation package, it’s intended to make trustees more accountable about decisions they make around things such as day-to-day operational fund expenditure, investing member’s money, strategic decisions, and decisions about discretionary fund expenditure.

“SMSFs have always been held to a very high standard when it comes to the sole purpose test, and transactions and decisions that could result in members deriving a personal benefit from the use of fund assets have always been heavily regulated and scrutinised.

“Given that members of an SMSF are also the trustees there is a strong incentive already for trustees to act in their own financial best interest.”

Burgess said one of the most common breaches of the rules were situations where SMSF trustees provided financial assistance to members or relatives.

“It’s situations like this, and other transactions involving related parties which may not be done on commercial arm’s length terms, where SMSF trustees are more likely to be in breach of the requirement to act in the best financial interest of fund members.

“However, even in these situations, it’s difficult to see how the introduction of this new duty will give the ATO any additional powers to take action against SMSF trustees who breach these rules.

“The ATO already has the power to impose monetary penalties, disqualify trustees or remove the complying status of the fund if trustees breach the rules relating to related party transactions.”

The exposure draft materials note that, for SMSF trustees, there will be no penalty if they contravene this proposed new duty but SMSF trustees found not to acting in the best financial interest interests of their beneficiaries could be penalised under other regulatory provisions in the SIS Act such as section 62 for providing financial assistance to a member or relative.

The SMSF Association’s virtual National Conference continues today and on Thursday.  More information can be found on the Conference website, including registrations which are still open, at: https://www.smsfassociation.com/NC2021

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