Elizabeth Wang

In essence a self-managed superannuation fund is a special form of trust and satisfies general trust law as the assets of the fund are held on trust by a trustee to provide retirement or death benefits for its members, with those members being the beneficiaries.

A superannuation fund can be wound up voluntarily or intentionally and the rules relating to winding up a superannuation fund are the same for any other trust.

Reasons why a superannuation fund may be wound up voluntarily include

• circumstances where all the members of the fund have left the fund or
• where all the assets of the fund have been paid out of the fund, either to the members as benefits or by rolling the assets over to another regulated superannuation fund, or
• where there has been a breakdown of a relationship between the members (including divorce) which may affect the ability of the members to effectively undertake their trustee/member obligations,
• where the members have relocated overseas indefinitely and the fund no longer satisfies the central management and control test, or
• where through age or infirmity the members are unable to effectively manage the fund.

A superannuation fund can also be intentionally wound up when directed by the ATO in circumstances where the superannuation fund has breached significant compliance issues.

To wind up a self-managed superannuation fund, the trustee will need to:

• notify the ATO within 28 days;
• deal with all assets of the fund so that the fund has no assets left;
• arrange a final audit of the fund; and
• complete the legal reporting responsibilities including the lodging of a fund annual return and finalising any outstanding tax liabilities.

Although, winding up an SMSF is a formal process that the SMSF can voluntarily and intentionally undertake, the trustee must be careful not to allow the superannuation fund to inadvertently have no assets at any time so as to immediately vest the trust unintentionally because a trust ceases immediately and automatically where there is no asset upon which it can operate.

The consequences of accidental vesting could be catastrophic from a tax and compliance viewpoint with the full marginal rate of tax being levied against whatever assets the fund should have retained and even criminal charges for conducting an early release scheme.

It is important to note that once a trust has vested it cannot be reactivated in a similar way to reinstating a de-registered company.

Please do not hesitate to contact our office for more information on winding up a fund or if you require assistance with preparing documentation to record the trustee’s decision to wind up a fund.

The post Accidental vesting of an SMSF appeared first on AdviserVoice.

Elizabeth Wang

If your trust deed was prepared quite some time ago, it may be time to update the governing rules of your SMSF trust deed. Doing so means that you can have peace of mind in knowing that the rules are current. Transactions such as an LRBA are permitted by the SMSF’s governing rules.

John and Mary established their SMSF back in 1999. They want to know whether they should update the current governing rules of their SMSF trust deed.

The trust deed of the fund is the rule book for its operation. The ATO have said many times that it is vital that the deed give the necessary power to the trustee when it comes to any act or omission by the trustee.

Super fund trustees cannot rely on the SIS Act and regulations which most often do not empower the trustee but simply make clear what the trustee’s obligations are and confirm permissibility of trustee action. Trust deeds which simply import the provisions of the Act and regulations are normally defective.

With this in mind it is vital that the fund’s deed be as up to date as possible.

For example the trustee(s) of an SMSF should update the governing rules of an SMSF regularly to ensure that the governing rules of the fund are up to date with current superannuation legislation and regulations.

The governing rules of some old trust deeds may need to be updated especially if the trustee(s) of an SMSF wants to borrow via a limited recourse borrowing arrangement (‘LRBA’) under section 67A of the Superannuation Industry (Supervision) Act 1993 (Cth) (‘SIS Act’).

John and Mary’s SMSF trust deed should be reviewed prior to their SMSF entering an LRBA to determine whether there are express provisions in their trust deed which permits the trustee of their SMSF to enter an LRBA to avoid any super compliance breach of section 67A of the SIS Act.

Trust deeds such as John and Mary’s which were established back in the 90s are likely to be outdated when it comes to setting out the minimum pension standard for SMSFs.

From 1 July 2007, the Superannuation Industry (Supervision) Regulations (‘SISR’) provided that all pensions must meet the minimum pension standards.

As the governing rules in John and Mary’s trust deed pre-date the minimum pension standards which came into effect from 1 July 2007, Mary and John should update the governing rules of their SMSF trust deed so that it contains provisions which satisfy those minimum standards.

All pensions that satisfy the minimum standards will generally be treated as super income stream benefits for income tax purposes. This means that Mary and John’s SMSF may be able to claim an exemption for the income earned on pension assets (‘ECPI’).

It is important to note that if the minimum pension standards are not met, the payments in relation to the pension will not be treated as super income stream benefits and an SMSF could lose ECPI for the income year and transfer balance account consequences may arise.

Some trust deeds may be silent on how a member of an SMSF can appoint another person to act as a trustee (or director of the corporate trustee) of their fund on their behalf.

This appointment may be required in cases where:

• a member becomes incapacitated, and may not be able to act as a trustee/director, or
• a member may no longer want the responsibility of being a trustee/director, or
• a child member is to be admitted as a member of the fund.

As John and Mary’s trust deed is silent on this it is recommended that they update the governing rules in their deed to ensure that a person who is acting as a representative trustee/director on behalf of a member is appointed in accordance with the governing rules of the fund to avoid future disputes from third parties who may challenge the validity of the member’s appointment of the representative trustee/director.

If your trust deed was prepared quite some time ago, it may be time to update the governing rules of your SMSF trust deed. Doing so means that you can have peace of mind in knowing that the rules of your fund are up to date with superannuation laws and regulations and that the transactions that your SMSF enters such as an LRBA are permitted by the SMSF’s governing rules.

When updating the governing rules of a trust deed the trustee(s) of an SMSF should also consider updating the investment strategy of the fund.

John and Mary should update the investment strategy of their SMSF so that the strategy is consistent with their current investment objectives and retirement goals.

The post What to consider when updating SMSF trust deed appeared first on AdviserVoice.

Elizabeth Wang

Can SMSF trustees sell a collectable (artwork) to a relative and does it require a valuation report?

John and Mary’s SMSF has purchased a collection of artwork as an allowable investment under s62A of the Superannuation Industry (Supervision) Act 1993 (Cth) (‘SIS Act’).

John and Mary want to know whether it is possible for their SMSF to sell the artwork to their art dealer niece and whether the sale would require the SMSF to obtain a valuation report.

Under superannuation law, an SMSF is permitted to invest in collectables and personal use assets such as artworks, jewellery, vehicles, wine and boats provided that the investment is made for genuine retirement purposes and does not provide any present-day benefit for the members of the fund, and the trust deed of the fund permits the trustee of the fund to enter into such an investment.

It is important to note that collectables and personal use assets cannot be:

• leased to, or be in a part lease arrangement with, a related party
• be used by a related party, or
• stored or displayed in a private residence of a related party.

This means that John and Mary’s SMSF is permitted to sell the collection of artwork to their niece who is a related party of the fund.

The sale of the artwork from John and Mary’s SMSF to the related party will trigger s109 of the SIS Act. Section 109 of the SIS Act provides that an SMSF has the obligation to always deal with other parties at an arm’s length basis (i.e. commercial basis), especially when dealing with related parties.

In keeping with s109 of the SIS Act, any collectable and personal use asset that John and Mary’s SMSF sells to a related party of the fund must be sold at market price as determined by a qualified, independent valuer.

The ATO has stated that it is usually the valuation process undertaken rather than who conducted the valuation that governs the acceptability of a valuation.

In relation to collectables and personal use assets, John and Mary’s SMSF will meet its valuation requirements if the following valuation principles are satisfied, which include:

• using a qualified independent valuer to obtain a valuation report if the asset was acquired on or after 1 July 2011 and is to be transferred or sold to a related party after that date, or if the asset was acquired before 1 July 2011 and is to be transferred or sold to a related party on or after 1 July 2016.
• the person conducting the valuation must base their valuation on objective and supportable data.
• the valuation has been arrived at using a ‘fair and reasonable’ process, such as:
  • it takes into account all relevant factors and considerations likely to affect the value of the asset
  • it has been undertaken in good faith
  • it uses a rational and reasoned process
  • it is capable of explanation to a third party.
• the qualified independent valuer determines the market price.

It would also be prudent for the trustee of John and Mary’s SMSF to keep all supporting evidentiary documentation in relation to the valuation of the artwork on the fund’s register in the event that the ATO decides to conduct a review on the valuation method used to determine whether the SMSF has met its valuation requirements in accordance with superannuation laws.

The post Can an SMSF sell a collectable to a related party? appeared first on AdviserVoice.

Elizabeth Wang

Rollovers from one SMSF to another must comply with the technical requirements. Elizabeth Wang from Townsends Law has summarised those requirements to save you time.

John and Mary have an SMSF. John has decided to establish his own SMSF where he will be the sole member of the Fund and will act as the sole director and sole company secretary of the corporate trustee.

John wants to know what the necessary steps are to transfer his entire member balance to his new SMSF as the exiting member.

As the exiting member, John must request his benefits be transferred to his newly establishment SMSF. To do this John must complete a Transfer Request (ATO Form 75359). ATO Form 75359 enables an existing member to request a rollover of their whole super balance to either an SMSF or other eligible super entity.

The current trustee of John and Mary’s SMSF must be satisfied that the nominated receiving fund is a regulated superannuation fund, approved deposit fund or retirement savings account. It must also accept the transfer request and authorise payment of the exiting member’s benefit to the trustee of the receiving superannuation entity.

The ATO has recently announced that APRA-regulated and SMSFs that receive a request to rollover their member’s super balance to an SMSF must use the SMSF verification service (SVS) to verify the SMSFs details before making the rollover in accordance with Regulation 6.33E of the Superannuation Industry (Supervision) Regulations 1994 (‘SISR’).

The purpose of the SMSF verification service (SVS) is to:

• determine the SMSF status (i.e. is the SMSF a ‘Complying’ or ‘Regulated’ fund)
• that the Tax File Number (‘TFN’) of the member requesting the rollover is associated with the SMSF
• no verified date of death exists for the member requesting the rollover
• that the SMSF bank details are held by the Australian Taxation Office (‘ATO’), and
• that Electronic Service Address (ESA) is held by the ATO.

The SMSF verification service (SVS) will either provide a verified or non-verified response. The SMSF can only proceed with a rollover once it has received a verified response. For non-verified responses, the SMSF/member should contact the ATO to confirm their details, so they can re-initiate the rollover.

In cases where an SMSF is prevented from using the SVS (i.e. the SMSF does not hold the member’s TFN or the SVS is no operational or available for an extended period of time) the SMSF/member may be required to request and submit a manual verification process. Requests for manual verification can be submitted to SuperCRT@ato.gov.au.

The trustee must issue a “Rollover Benefits Statement” to John’s new SMSF as the receiving fund within three days of payment of the benefit using the SuperStream data and payments standards. If the rollover SuperStream standard does not apply to the transaction the trustee must complete a Rollover benefits statement (RBS) or a Death benefit rollover statement (DBRS) (if applicable) to the receiving fund within seven days of paying the rollover and provide a copy to the existing member within 30 days of payment of the benefit.

It is important to note that from 1 October 2021, it will be mandatory to use SuperStream to digitally rollover any member benefits from and to an SMSF. Trustees can provide the Rollover Benefit Statement to the receiving fund by sending the information electronically via SuperStream. If the trustee is unable to send the information electronically via SuperStream, the trustee must provide a paper statement to the receiving fund using the ATO Form NAT 70944.

A copy of the Rollover Benefits Statement (ATO Form NAT 70944 or a similar form containing the equivalent information) must also be provided to the relevant member within 30 days of the rollover payment.

John’s benefits must be paid as soon as possible after the acceptance of the transfer request but, in any event, must be paid within 30 days. The payment of the exiting member’s benefit will cause the exiting member’s membership to terminate.

As there is a change of member in John and Mary’s SMSF, Mary being the sole member of the Fund will need to notify the ATO of John’s exit from the fund within 28 days of John ceasing to be a member of the Fund. Mary can notify the ATO by completing Form 3036. The ATO will also need to be notified of any change in trustee/director. Form 3036 can also be used.

The trustee of John and Mary’s SMSF is a corporate trustee. John must resign in writing as a director or that company at the time of the rollover. Mary must notify ASIC that John as the exiting member is ceasing to be a director of the corporate trustee. Mary can complete the online ASIC Form 484 within 28 days

By Elizabeth Wang, Solicitor

The post Are you up to speed on the latest process to rollover a member of an SMSF? appeared first on AdviserVoice.

Elizabeth Wang

Mary being the sole individual trustee of her trust has recently passed away. Her daughter Sarah is her executor.

Because Mary was the sole individual trustee of the trust this raises the issue of whether the trust has automatically vested on her death. If the trust has vested this could be very unfavourable from a tax and transfer duty point of view. Vesting will occur if any of the three basic elements of a trust are absent.

The three essential elements which give rise to a trust relationship are:

1. the legal ownership of the trust property is held by and in the name of the trustee
2. that trustee holds the trust property on behalf of and for the benefit of a beneficiary
3. that trustee has personal duties in respect of the property and breach of those duties can make the trustee personally liable to that beneficiary and sometimes others.

So, it boils down to whether or not there is a trustee of the trust following Mary’s death and if so who.

The first place to look is the trust deed that set up the trust or that now regulates the trust. Most trust deeds contain provisions that set out the change of trustee process and how to deal with the death of a trustee particularly where the last surviving trustee has died.

Depending on the provisions of the trust deed, the power to appoint a replacement trustee where the last surviving trustee has died, may lie with the so-called “appointor” of the trust.

But if that “appointor” is not able or willing to exercise their power of appointment to appoint a replacement trustee, we move to the next two possibilities.

The second place to look is the Will of the deceased.  Trust deeds often permit the trustee to appoint their successor in their Will. Mary may have done that.

The third place to look is the local State or Territory Trustee Act. In NSW, the power to appoint a new trustee may be exercised by the executor or the administrator of the last surviving trustee’s Will under s.6 of the NSW Trustee Act. There are likely equivalent sections in other States and Territories.

Section 6 of the NSW Trustee Act can also be relied upon to appoint a new trustee in other cases such as:

• where a trustee remains outside of NSW for more than 1 year without having properly delegated the execution of the trust
• where a trustee remains outside of NSW for more than 2 years
• where a trustee wants to be discharged from all or any of the trusts or powers conferred on the trustee
• where a trustee refuses or is unfit to act as a trustee (e.g. all adult trustees pass away simultaneously and the sole surviving trustee is a minor)
• where a trustee is removed under a power contained in the instrument creating the trust
• where a trustee being a corporation is dissolved.

As Mary has passed away a replacement trustee will need to be appointed as trustee of Mary’s trust as soon as practicable as any assets of Mary’s trust will not form part of Mary’s estate nor can they be dealt with by her Will. Instead, the assets of Mary’s trust must be transferred from her as a deceased trustee to the replacement trustee.

In Mary’s case Sarah is Mary’s legal representative (executor) and is willing and able to act as a trustee. Under the Trustee Act, Sarah may appoint herself as a trustee however for Sarah’s appointment to be effective and valid the appointment should be made under a deed and the deed must be registered on the NSW General Register.

This means that Sarah is permitted to deal with the assets of the trust which may be transferred from the deceased trustee to herself as the new trustee of the trust.

Special care needs to be taken when transferring the assets of the trust from the deceased trustee to the new trustee to avoid transfer duty. Sarah must also be mindful of the anti-avoidance section 54(3) of the Duties Act 1997 (NSW) which may inadvertently catch the transfer.

If, on the other hand, Mary was the sole director of the corporate trustee of her trust then the passing away of Mary as the sole director is not necessarily cause for alarm as the corporate trustee will continue.

Generally, the shareholders of a company have the power to appoint a new director. Where matters can get tricky is if Mary was also the sole shareholder of the corporate trustee. In such cases, s.201F of the Corporations Act permits Mary’s executor or administrator to appoint the new director of the company, including themselves.

By Elizabeth Wang, Solicitor

The post What happens when the last surviving trustee dies? appeared first on AdviserVoice.

Elizabeth Wang

Garry and Betty are the directors of the corporate trustee of their SMSF.  They are contemplating acquiring a property through their SMSF, which they plan to lease to an unrelated third party at market value until both of them reach their preservation age and retire as a condition of release.

They want to know whether it is possible for them to reside in the property as their principal place of residence once both of them have reached this condition of release.

There are a couple of things that Garry and Betty will need to consider to ensure that the transaction complies with superannuation laws.

Issue 1: The sole purpose test

Is it possible that purchasing the property now with the intent to reside in it in the future once the members of the SMSF have met a condition of release is a breach of the sole purpose test?

SMSF Ruling 2008/2 provides that an SMSF may only be maintained for the sole purpose of providing retirement benefits to the members, or to their dependants if a member dies before retirement. It also provides that in determining whether an SMSF has satisfied the ‘sole purpose’ test one must consider all the facts and circumstances surrounding the trustee’s behaviour in relation to the acquisition of the property.

For example, if the trustee invests in a property where there is a significant likelihood that the investment in the property will not increase any return for the SMSF and the trustee simply purchased the property because the members always dreamed of retiring to a lovely coastal home then the ATO may take a sceptical view and rule the transaction a breach of the sole purpose test.

If, on the other hand the trustee has supporting documentation such as valuation reports which shows that the investment property is likely to provide an increase in return for the SMSF then the sole purpose test may be satisfied, notwithstanding the ancillary purpose.

Issue 2: whether the property can remain being held by the SMSF

An SMSF will fail to meet the ‘sole purpose’ test if the SMSF provides a pre-retirement benefit to a member of the SMSF.

If Garry and Betty decide to reside in the property once they have both met a condition of release they should transfer the property from the SMSF to the members in their personal capacity.

This is to avoid potentially breaching the ‘sole purpose’ test in the event that Garry and Betty residing in the property is treated as a present day benefit or personal use of an SMSF asset.

Issue 3: Capital Gains Tax and Land Tax

There is no capital gains tax on a transfer of property between an SMSF and the members of an SMSF in their personal capacity once the members have reached a condition of release unlike an SMSF selling a property before the members retire in which case the SMSF is charged 10% capital gains tax.

In most states/territories a principal place of residence will not be subject to land tax. As the property will be Garry and Betty’s principal place of residence they will not have to pay land tax.

Transfer duty on the transfer from the SMSF to Garry and Betty in their personal capacity will result in transfer duty or nominal duty being paid except in VIC, ACT, QLD and SA where transfer duty on this type of transaction is exempt.

The trustee must still ensure that the in-specie transfer is permitted under the trust deed. If the trust deed is silent on any in-specie transfer then the trust deed will need to be updated to allow the in-specie transfer to occur.

While it may seem advantageous to acquire a retirement property through your SMSF with the hope of residing in the property once you retire there are issues to consider with this type of transaction, particularly ensuring that the SMSF satisfies the sole purpose test.

By Elizabeth Wang, Solicitor

The post Buy your retirement home now in your SMSF and use it when you retire? appeared first on AdviserVoice.

Elizabeth Wang

John and Mary are looking to acquire an off-the-plan property through their SMSF. They need to consider the five following points.

1. Purchaser named on the contract

It is important that the correct entity is named on the contract of sale to avoid any adverse tax consequences.

If John and Mary’s SMSF will not be borrowing then the purchaser named on the contract of sale must be in the name of the trustee of the SMSF.

In the event that a limited recourse borrowing arrangement (‘LRBA’) will be used to acquire the property then the holding trustee (sometimes called the custodian or agent)  should be listed as the purchaser on the contract of sale, even though it is the SMSF that is borrowing to purchase the property.

Regardless of whether the purchaser of the property is the trustee of the SMSF or the holding trustee, the description of the trustee or the holding trustee as the purchaser should not mention the name of the fund. Further, no reference should be made to the name of the holding trust where the holding trustee is named as the purchaser. This is because reference to the name of the fund or the name of the holding trust may be regarded in some states such as NSW as a declaration of trust and in NSW full ad valorem stamp duty could be payable on such a declaration of trust.

However, in some states such as Victoria, where an LRBA is being used to acquire the property it is not uncommon for the purchaser named on the contract to complete a nomination form to designate a holding trustee as the new nominated purchaser of the property for the SMSF prior to settlement.

If a nomination is to be made in favour of the holding trustee, then the nomination must be signed and dated before executing the holding trust deed. Further, after the purchase the holding trustee must be the entity registered on title as the owner of the property even though it is the SMSF which is borrowing to purchase the property.

The holding trust deed should also make reference to the fact that the purchaser named on the contract is subsequently exercising their right under the contract to nominate a substitute purchaser for the property under a nomination made in favour of the holding trustee as the substitute purchaser in relation to the property.

2. Order of signing documents

In most states and territories where an LRBA is being used, the holding trust deed is signed after the contract of sale and is usually executed as close to settlement as possible to ensure that the purchaser has sufficient time to attend to stamp duty on the holding trust deed, if applicable.

However, in some states such as QLD there is some debate amongst legal commentators as to whether the holding trust deed should be signed and dated prior to or after executing the contract of sale.

The conservative approach would be to secure the property by executing the contract of sale first and then signing and dating the holding trust deed as close to settlement as possible.

Whilst a QLD holding trust deed does not need to be submitted to the local Duties Office to be marked as exempt from stamp duty, it is important to make enquiries with third parties such as a commercial lender regarding the order in which the holding trust deed should be signed.

Some commercial lenders may require as part of their loan approval process that the holding trust deed is signed and dated prior to the contract of sale before they advance the loan amount at settlement. To prevent delays and further legal fees as a result of having to prepare additional documents to satisfy the requests of a commercial lender, always ensure that enquiries are made with the lender as to the order of signing a holding trust deed, particularly if the property is being acquired in QLD.

3. Is the property a single acquirable asset?

It is not uncommon for an off-the-plan property to be sold with an additional or multiple car space.

However, if an SMSF is acquiring an off-the-plan property using an LRBA, then this raises the issue as to whether the property constitutes a ‘single acquirable asset’. Under superannuation law each single acquirable asset must be acquired using a separate holding trust and separate loan. If there is more than one ‘acquirable asset’ bundled together, using a single holding trust and single loan would be in breach of superannuation law.

The ATO’s SMSFR 2012/1 ruling states that a factor in determining if the property being acquired is a single acquirable asset is whether under state or territory law the two assets (i.e. unit and car space) must be dealt with together or can be dealt with separately. The Ruling also provides useful examples to illustrate when different types of land/property may and may not constitute a single acquirable asset.

4. LRBAs from a related party of the SMSF

It is important to note that as part of Act No 78 being the Treasury Laws Amendment (2018 Superannuation Measures No 1) Act 2019, a member’s share of the liability under an LRBA which is entered on or after 1 July 2018 will be calculated as part of their total superannuation balance immediately before the end of the financial year.

This measure is to apply retrospectively to LRBAs where the lender is an associate of the SMSF or a member participating in the LRBA has satisfied an unrestricted release condition (such as attaining the age of 65 or being retired for superannuation purposed), regardless of whether the member is actually in retirement phase.

If John and Mary decided to seek finance from a related party lender then any outstanding loan balance will be added to their total superannuation balance. A member will be prohibited from making further non-concessional contributions once their total superannuation balance reaches $1.6million.

5. Multiple lenders

If an SMSF is seeking to finance the acquisition of an off-the-plan property from multiple lenders under an LRBA then the loans should be provided when the property is being acquired to comply with superannuation laws.

If the finance for the acquisition of the property is, say, to be split so that if part of the loan is being financed by a commercial lender and the remainder is being financed by a related party lender then it is important to obtain written confirmation from the commercial lender regarding this particular financial setup.

Further, the second mortgage over the property to secure the related party loan will need to be separate and distinct from the first mortgage to the commercial lender.

It is also vital to ensure that the related party’s mortgage is not acting as security for the commercial lender’s loan.

By Elizabeth Wang, Solicitor

The post Five traps for SMSFs buying off-the-plan appeared first on AdviserVoice.

Elizabeth Wang

Electronic execution of documents is bedevilling lawyers across the country because of the complex interweaving of various statutes and the common law.

John and Mary have an SMSF and are the directors of the corporate trustee. They have recently changed the trustee of their SMSF from individual trustees to a corporate trustee. This was a requirement of the commercial lender providing finance to the SMSF which bought an off-the-plan property in NSW under a limited recourse borrowing arrangement.

With settlement being imminent within a week’s time, John and Mary are concerned that there is not sufficient time for the holding trust deed (which is required to be signed prior to settlement in NSW) to be executed by them in their capacity as the directors of the SMSF and the custodian company. This is because John lives in NSW and Mary is currently in the UK visiting her parents.

In the interest of time, John and Mary are wondering whether it is possible for them to execute the holding trust deed electronically.

Section 127 of the Corporations Act 2001 (Cth) sets out how a company can execute a document (including a deed) either with or without using a seal.

Section 127 does not limit the ways that a company can execute a document, including a deed. Therefore, a company may state in its constitution the method that the company is to use to execute documents. However, section 129 of the Corporations Act 2001 (Cth) provides a statutory protection for a counterparty and/or third party if that execution complies with a method specified in s127 of the Corporations Act 2001 (Cth) (i.e., a company executes a document through its sole director or two directors or one director and the company secretary).

The recent Treasurer’s Determination issued under the Emergency Powers granted to deal with COVID-19, permits a counterparty and/or third party to access the statutory protection otherwise afforded to them under s129 of the Corporations Act 2001 (Cth) where a company has executed a document electronically by the officeholders even if under s127.

Prior to the Determination (which came into effect on 6 May 2020 and is enacted for a period of 6 months) counterparties and third parties were hesitant to rely on and accept documents as being validly executed by a company despite being executed in accordance with s127 of the Corporations Act 2001 (Cth) if the document was executed electronically by the officeholders.

With the Determination now in place counterparties and third parties (such as banks, the state revenue offices and state land titles offices) can now rely on s129 of the Corporations Act 2001 (Cth) and be satisfied that a document that has been executed by the company electronically is valid, and they do not have to investigate further or be worried that the execution will be invalidated at a later time by the company officers saying they did not execute the document properly.

It should be noted that in executing the document electronically as directors John and Mary are not witnessing the execution but are part of the execution by the company.  Therefore, the tricky issues that apply in all states regarding how you witness a document electronically are not relevant.

By Elizabeth Wang, Solicitor

The post Electronic company document execution appeared first on AdviserVoice.

Elizabeth Wang

What do trustees need to consider when winding up an SMSF?

Mary is the sole member and one of two individual trustees of her SMSF – the other being her daughter. Mary’s health is starting to deteriorate and she no longer wishes to run the fund in the future. She now wishes to wind up her SMSF.

Mary’s desire to wind up her SMSF is a common scenario that sees trustees choosing to wind up their SMSF. Other reasons why trustees may choose to wind up an SMSF include:

•  the members having insufficient assets to justify the running of an SMSF;
• the members have exited the fund either by rolling over their benefits to another fund, or have passed away;
• there is a breakdown of a relationship between one or more members of the SMSF;
• a trustee becomes bankrupt; and
• the members of the fund wish to move overseas indefinitely and no longer want the burden of running the fund.

While winding up may occur in quite different situations, the general process is the same. Winding up an SMSF essentially involves determining the value of the fund’s assets and its liabilities and using the assets to pay out the fund’s liabilities.

Just like starting an SMSF, the members/trustees will need to ensure that they wind up their SMSF properly.

Some key issues that Mary and other members/trustees will need to consider when winding up their SMSF are outlined below.

Issue 1: Who has the power to wind up the SMSF?

Mary will need to check the trust deed of her SMSF to see what it says about who has the power to wind up the fund, who needs to be notified, and the procedure of allocation of the fund’s assets.

This section of the deed may commonly be called “Termination of the fund” or “Winding up”.  It is important that the rules on winding up as outlined in the trust deed be followed.

This is especially important in circumstances where a trustee is bankrupt and is disqualified from acting in their capacity as a trustee. Where this arises, the trust deed may provide further information regarding who has the power to wind up the fund in exceptional circumstances.

Issue 2: What will happen to the fund’s non-cash assets and how will each member’s benefits be paid?

If Mary’s fund owns real property or other assets that are not cash, it will be necessary for her to consider whether those assets are to be liquidated or, alternatively, transferred in specie to her as the sole member of the fund.

Any cash benefits can be transferred as a rollover to another complying superannuation fund, or by paying the funds to the member directly. It is important to note that the relevant condition of release under superannuation laws will need to have been met before any funds are paid out directly to a member. There are serious penalties where if a member accesses their super and a condition of release has not been satisfied.

Where assets of the fund are sold, transferred in specie or cash benefits paid directly to a member, appropriate advice on any tax implications and any other implications such as impact on Centrelink entitlements should be taken into consideration before determining the appropriate course of action.

Mary should also consider whether the disposal of a fund asset to enable the payment of benefits or the rollover of benefits to another fund may give rise to a capital gains tax (CGT).

If a transfer of an asset in specie is to occur the value of the asset being transferred or portion of the asset being transferred cannot exceed the member’s total benefit in the fund.

Where a member of the fund has passed away, the relevant rules in the trust deed about the allocation of a deceased member’s benefits should be followed.

If Mary is in retirement phase she may also need to consider whether she has any transfer balance account reporting obligations when winding up the fund. Such an obligation would arise where Mary’s member account has been debited as a result of her retirement phase income stream being fully or partially commuted as this would affect her member’s transfer balance account. The value of this commutation is required to be reported to the ATO by completing a super transfer balance account report (TBAR) at the time it occurs.

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Elizabeth Wang

Given all the talk about the dreadful bush fires you’d be forgiven for thinking victims could access their super to help with their recovery.  Think again, as Elizabeth Wang reports.

Robert and Mary have been affected by the devastating bushfires.

They are struggling financially and are wondering whether it is possible to withdraw some of their super early from their SMSF.

A member of an SMSF is generally prohibited from withdrawing their super prior to retirement. Penalties for early access can include gaol terms as it’s seen in the same boat as cheating the tax or social security systems.

It’s natural for Robert and Mary to think that having found themselves in a financial bind not of their making they’d be able to access their super early to help out. The Federal Government takes a different view.

Fundamentally it wants their super protected to pay for their retirement regardless of how uncomfortable and impoverished they are leading up to that retirement.  They argue that releasing super now will simply mean Robert and Mary have nothing on their retirement and they will then be a greater drain on the social security system.

Early access to super is very strictly controlled and is nowhere near as accessible as Robert and Mary had hoped.

Withdrawing super early is illegal unless a member meets a ‘condition of release’ contained in Schedule 1 of Superannuation Industry (Supervision) Regulations 1994 (Cth). A member will have met a ‘condition of release’ if any of the following applies:

• they have reached their preservation age and have retired;
• they have reached their preservation age and have started a transition to retirement income stream while still being employed; or
• they have attained the age of 65 (whether employed or retired).

Other special circumstances where a member may access their super early include:

• severe financial hardship;
• compassionate grounds;
• terminal medical conditions;
• temporary incapacity;
• permanent incapacity;
• super less than $200; and
• temporary resident departing Australia.

To access their super early based on the ‘severe financial hardship’ ground, Robert and Mary must:

(a)    have been in receipt of eligible government income support payments continuously for 26 weeks and be unable to meet reasonable and immediate family living expenses (SIS Reg 6.01(5)(a)), or

(b)    have attained their ‘preservation age’ (as defined) plus 39 weeks and must have received Commonwealth income support payments for a cumulative period of 39 weeks after attaining the relevant preservation age and not be gainfully employed on the date of the application (SIS Reg 6.01(b)).

If they come within (a) the minimum amount that each of Robert and Mary can withdraw is $1,000 and the maximum amount is $10,000. They will only be able to make one withdrawal from their super fund because of severe financial hardship in any 12-month period. If they come within (b) there is no limit.

To access their super early based on the ‘compassionate grounds’ they can apply to the ATO for a determination that an amount of their super be released based on one of a very limited list of ‘compassionate grounds’.  In Robert and Mary’s case that could only be because they do not have the financial capacity to pay for ‘medical treatment’ (for life-threatening conditions) or make payments to prevent foreclosure by a mortgagee.

In addition to the above, Robert and Mary will also need to review their SMSF’s trust deed to determine whether their trust deed provides restrictive rules around the payment of benefits.

Robert and Mary will also need to consider the tax implications which can arise as a result of a super withdrawal due to severe financial hardship as there are no special tax rates. For a member under 60 years of age the super withdrawal may be taxed between 17% and 22% while the withdrawal may be tax-free for members over 60 years.

Robert and Mary may also need to consider whether the lump sum super withdrawal may affect any current payments they may be receiving from Centrelink.

It’s all very well for our politicians to stand in front of the camera telling bush-fire affected communities how much they support them, but when it comes to early access to super the rules are strict and far from helpful.

On a related issue, if you are a member, a trustee of an SMSF, or your SMSFs business or postal address, is found to be in an identified bushfire-impacted area the Australian Taxation Office (‘ATO’) have released a statement on its website stating that it will automatically apply deferrals for activity statements, annual return lodgements and associated payments.

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