An Smsf Member May Appoint Their Representative To Be Trustee In Their Place Ato Guidance Releas

The ATO has released a Draft Ruling about the process and documents required for

an SMSF member to appoint their legal personal representative to be the trustee (or director of the trustee) of their SMSF (in place of the member). The arrangement is one way to reduce the risks involved under the residency test when the member is outside Australia for an extended period.

When an SMSF member's representative can be trustee (or director of the trustee) in place of the member

Given that an important element of an SMSF is that it is indeed 'self managed', the law requires1 that all members of an SMSF must be either the SMSF's trustees, or directors of the SMSF's corporate trustee. However, an exception2 allows for a member's legal personal representative who holds an enduring power of attorney in respect of the member to be a trustee of the SMSF in place of the member.

One example of a situation in which this arrangement is implemented is when an SMSF member:

is to be out of Australia for an extended period of time; and

needs to ensure that the SMSF's central management and control remains in Australia this is essential for the SMSF to continue to qualify as a complying superannuation fund.

Aside from this situation, it is difficult to think of another circumstance where this arrangement would be used, as a SMSF member should always manage, and be in control of, their own superannuation.

How to arrange the replacement trustee ATO's Draft Ruling SMSFR 2009/D1

The ATO's Draft Ruling discusses the conditions that need to be satisfied for an SMSF to remain compliant by allowing a legal personal representative to replace a member as trustee (or director of the trustee). These conditions are:

1.The representative must hold an enduring power of attorney for the relevant member however, the power can be limited to the member's superannuation affairs;

2.The representative must be appointed as a trustee of the SMSF or as a director of the corporate trustee of the SMSF, and the member must resign as a trustee (or director of the SMSF's corporate trustee); and

3.Only one person, who holds an enduring power of attorney, can replace a member as trustee of an SMSF (or director).

The Draft Ruling states that a person who holds an enduring power of attorney for a member is classified as a member's legal personal representative3.

Enduring Power of Attorney

The power of attorney will need to be an enduring power of attorney (as opposed to a general power of attorney) meaning the authority and powers continue even if the member becomes legally incapable or dies. This is an important point a general power of attorney will not be sufficient. SMSF members thinking of using an enduring power of attorney should have a lawyer draft them particularly given the formal requirements set out in State and Territory legislation.

The document that creates the enduring power of attorney must include powers that allow a person to act in relation to the member's:

financial, business and property affairs; or

superannuation affairs4.

An enduring power of attorney that does not confer either of the above powers will not be appropriate for the purposes of section 17A(3)(b)(ii) of the SIS Act.

How to appoint the member's representative as trustee

After the member has signed the enduring power of attorney, the member's representative needs to be properly appointed as:

an individual trustee, in accordance with the SMSF's trust deed; or

a director of the corporate trustee, under the company's constitution.

At the same time, the member appointing the attorney must resign from their appointment as trustee (or director).

When the representative is appointed, they:

take on all the responsibilities and duties as trustee in their personal capacity and do not merely act as an agent for the member5; and

need to remain in Australia for the purposes of management and control of the SMSF to make sure the SMSF continues to be a complying superannuation fund.

Only one person can be appointed for the SMSF under an enduring power of attorney

If a member appoints several attorneys, then only one can be appointed as SMSF trustee (or director) in place of the member.

The person who becomes trustee (or director) will have an extensive role in how the SMSF is controlled and managed. Therefore, the member should give the power only to a trusted and capable individual.

Practical Issues about appointing an enduring power of attorney

An enduring power of attorney can be very extensive in nature and can allow an individual to have full control over all of an SMSF member's financial and superannuation affairs. This control may be necessary while the member is residing outside Australia. However, when the member returns to Australia, they should be able to regain control of their SMSF. Properly drafted appointment documents should provide for this.

SMSF members and their advisors should always seek legal advice about arranging enduring powers of attorney and appointment documents and should ensure that a lawyer drafts the documents in accordance with the needs of the SMSF member.

The Draft Ruling comes into effect on the date it is finalised. In the meantime, it is prudent to take the Ruling into account.

by: Maddocks Solicitors

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