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Change is the New Norm
Acis, current as of: 29 October 2015.
One thing we can guarantee with absolute certainty these days is that change is a new constant in our lives. It’s no surprise, therefore, that the question often arises as to whether the trust deed for a SMSF needs to be upgraded regularly.
In virtually all cases the response is “yes”. Continual review of trust deeds ensures they properly operate SMSFs and invest assets in a way which complies with current law. The benefits of consistency across trust deeds cannot be understated. Having a single standard assists with the audit process, accounting, administration and cost per deed for ongoing compliance.
Even more importantly, reviews and updates to trust deeds offers the ideal platform for strengthening your relationships and ongoing relevance to clients in terms of their personal and business goals, plus has the potential to provide revenue generating opportunities.
Continual reviews ensure that individual trust deeds are current and that SMSF auditors, accountants and financial planners can be confident in the uniformity of each deed they administer. It’s important to note that auditors are, in fact, required by the published audit standards to determine if the actions of a trustee are authorised by the trust deed.
Change is guaranteed
Change is our new norm, and, in terms of SMSFs, may come from any number of sources:
- Amendments to the legislation that regulates the operations of the fund. The legislation includes the Superannuation Industry (Supervision) Act 1993, the Income Tax Assessment Act 1936 and a multitude of Acts and Regulations passed at a State or Federal level;
- The ATO’s administrative penalty regime;
- Decisions in the Administrative Appeals Tribunal and the Courts – and there are many courts and many judgements made every year;
- Rulings, Practice Statements and any number of other pronouncements issued by the Commissioner of Taxation (again, there are many issued each year);
- The myriad of enquiries being undertaken at any time by the Federal government – for example the Murray Financial System Enquiry that the government has recently put back on the agenda;
- ASIC regulatory requirements;
- Requirements adopted by entities with which the fund may interact or transact – for example, many trust deed provisions arise because of the demands of banks or insurance companies; or
- Accounting, financial planning, and legal and estate planning practices and policies.
It is important to understand that the contents of the SMSF’s trust deed form the basis of the trustee’s powers, and authorise it to operate in a way that benefits the members of the fund and complies with the rules. In fact, it is the paramount authority for the trustee .
While the legislation authorises certain actions by the trustees, it is far more concerned with setting out what an SMSF cannot do. The legislation is designed to ensure the integrity of the superannuation and taxation systems and does not (except in limited circumstances) prescribe what actions the trustee is authorised to take within the confines of those limits.
The overriding principle of trust law is that the trustee cannot do what it is not authorised to do by the trust deed. A SMSF is, of course, simply a form of a trust.
Risk rises with out-of-date deeds
It is fundamentally important, therefore, that a SMSF’s trust deed is kept up-to-date. Without this, the trustee may be unable to lawfully operate in the way that it wishes without risking a breach of trust. The changes to law and practice mentioned above, do not apply automatically without changes being made to the trust deed.
Additional risks arising from a failure to keep trust deeds current or to properly examine each deed in detail, include:
- Adverse impacts on professional indemnity cover;
- Sanctions from advisers’ professional associations; and/or
- An inability to properly service clients’ needs.
If you would like to find about more about standardising your deeds, please contact Legal Services on 1800 773 477.