The intersection of Family Law and Succession Law

Contents Para

SelfManagedSuperannuationFunds Ruling

SelfManagedSuperannuationFunds: thescopeandoperationof subparagraph17A(3)(b)(ii)ofthe SuperannuationIndustry(Supervision) Act1993

Preamble

WhatthisRulingisabout1 regulationsunRuling4

ThispublicationrepresentstheCommissioner'sviewaboutthewayinwhich provisionsoftheSuperannuationIndustry(Supervision)Act1993,or derthatAct,applytosuperannuationfundsthatthe Commissionerregulates:principallyselfmanagedsuperannuationfunds.

SelfManagedSuperannuationFundsRulings(whetherdraftorfinal)arenot legallybindingontheCommissioner.However,iftheCommissionerlater takestheviewthatthelawapplieslessfavourablytoyouthanthisruling indicates,thefactthatyouactedinaccordancewiththisrulingwouldbea actorinyourfavourintheCommissioner'sexerciseofany astowhatactiontotakeinresponsetoabreachofthatlaw.The Commissionermay,havingregardtoallthecircumstances,decidethatitis riatetotakenoactioninresponsetothebreach.

1.ThisRulingexplainshowsubparagraph17A(3)(b)(ii)ofthe SuperannuationIndustry(Supervision)Act1993(SISA)1 appliesto selfmanagedsuperannuationfunds(SMSFs).

2.Subparagraph17A(3)(b)(ii)allowsapersonwhoholdsan enduringpowerofattorneyinrespectofamembertobetrustee,or directorofthecorporatetrustee,ofasuperannuationfundinplaceof thememberwithoutcausingthefundtoceasetobeanSMSF.

3.ThisRulingdoesnotprovidetheCommissioner’sviewson howotherSISAandSuperannuationIndustry(Supervision) Regulations1994(SISR)provisionsapplytoanyofthearrangements discussedinthisRuling.

1 AlllegislativereferencesinthisRulingaretotheSISAunlessotherwiseindicated.

Ruling

4.Section17Asetsoutcertainconditionsthatasuperannuation fundmustsatisfyinordertobeanSMSF.Theprimaryrequirements aresetoutinsubsection17A(1)forfundswithmorethanone memberandinsubsection17A(2)forsinglememberfunds.One particularrequirementisthateachmemberofanSMSFisalsoa trustee,oradirectorofthecorporatetrustee,oftheSMSF.Exceptin thecaseofsinglememberfunds,eachtrustee,ordirectorofthe corporatetrustee,isalsoamemberoftheSMSF.Subsection17A(3) thenprovidesanumberofexceptionstotheconditionsimposed undersubsections17A(1)and(2).

5.Undersubparagraph17A(3)(b)(ii)alegalpersonal representativewhoholdsanenduringpowerofattorneygrantedbya membermaybeatrusteeoftheSMSF,oradirectorofthecorporate trusteeoftheSMSF,inplaceofthememberwithoutcausingthefund tofailtosatisfythedefinitionofanSMSF.

6.Apersonwhoholdsanenduringpowerofattorneyfora memberqualifiesasalegalpersonalrepresentative.

7.Inordertocomplywithsubparagraph17A(3)(b)(ii),thelegal personalrepresentativemustbeappointedasatrusteeoftheSMSF, oradirectorofthecorporatetrusteeoftheSMSF.Themembermust ceasetobeatrusteeoftheSMSForadirectorofthecorporate trusteeexceptwherethelegalpersonalrepresentativeisappointed asanalternatedirector.

8.Theappointmentofthelegalpersonalrepresentativeasa trusteeandtheremovalofthemembermustbeinaccordancewith thetrustdeed,theSISAandanyotherrelevantlegislation.

9.Theappointmentofthelegalpersonalrepresentativeasa directorofthecorporatetrusteeandtheremovalofthememberfrom thisposition,mustbeinaccordancewiththeconstitution(ifany)of thecorporatetrustee,theSISAandtherelevantprovisionsofthe CorporationsAct2001(CorporationsAct).

10.Amemberwhoisadirectorofthecorporatetrusteemayalso appointtheirlegalpersonalrepresentativeholdinganenduringpower ofattorneyasanalternatedirectorintheirplaceinaccordancewith thecorporatetrustee’sconstitutionorsection201Kofthe CorporationsAct.Ifthelegalpersonalrepresentativeisappointedas analternatedirector,heorshemustbesoappointedintheirown rightandnotasthemember’sagent.Inaddition,thetermsofthe appointmentmustonlyempowerthelegalpersonalrepresentativeto actasadirectorwhenthememberisnotperformingthoseduties themselves.Thememberisnotremovedfromthepositionofdirector inthesecircumstances.

11.Thelegalpersonalrepresentativeperformstheirdutiesasa trusteeoftheSMSF,oradirectorofthecorporatetrusteeofthe SMSF,pursuanttotheirappointmenttothatpositionratherthanas anattorneyoragentforthemember.Consequently,anyproscriptions containedinStateorTerritorylegislationagainstconferringtrustee dutiesandpowersviaapowerofattorneyorcommonlawrestrictions onattorneysundertakingdirectorsdutiesarenotrelevanttothe applicationoftheexceptioncontainedinsubparagraph17A(3)(b)(ii).

12.Further,asthelegalpersonalrepresentativeisactingina personalcapacityasatrusteeoftheSMSF,thelegalpersonal representativeissubjecttocivilandcriminalpenaltiesforany breachesoftheirdutiesundertheSISAorotherlegislation.Likewise, alegalpersonalrepresentativewhoisadirectorofthecorporate trusteeisalsosubjecttocivilandcriminalpenaltiesforbreachesof theSISAandtheCorporationsAct.

13.Theenduringpowerofattorneymustbecurrentandaccord withtherelevantStateorTerritorylegislationrelatingtoenduring powersofattorneyatalltimesduringwhichthelegalpersonal representativeisatrustee,oradirectorofthecorporatetrustee,of theSMSFinplaceofthemember.

14.Whereamemberisdisqualifiedfrombeingatrustee,ora directorofthecorporatetrustee,ofanSMSFundersection120, subsection17A(10)preventstheexceptionsinsubsection17A(3) fromapplyinginrespectofthatmember.Consequently,theexception insubsection17A(3)(b)(ii)willnotapplyandthesuperannuationfund willceasetosatisfythedefinitionofanSMSFunder subsections17A(1)or17A(2).

15.Whereanenduringpowerofattorneyisexecutedinfavourof multipleattorneys,oneormoreofthoseattorneyscanbeappointed asatrustee,oradirectorofthecorporatetrustee,inplaceofthe member.

16.Similarly,multiplememberscanexecuteanenduringpowerof attorneyinrespectofthesamelegalpersonalrepresentativewhocan beappointedasatrustee,oradirectorofthecorporatetrustee,in placeofeachofthosemembers.

17.Finally,amembercanexecuteanenduringpowerofattorney infavourofanexistingmemberwhoisatrustee,ordirectorofthe corporatetrustee,intheirownright.Inthatcase,thedonormember canceasetobeatrustee,oradirectorofthecorporatetrustee,and thelegalpersonalrepresentativewillbeconsideredtobeappointed intheirplaceforthepurposesofsubparagraph17A(3)(b)(ii).

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FundstowhichtheRulingapplies

18.ThisRulingappliestoSelfManagedSuperannuationFunds2 (SMSFs)andformerSMSFs.3 ReferencesintheRulingtoSMSFs includeformerSMSFsunlessotherwiseindicated.

Dateofeffect

19.ThisRulingappliestoyearsofincomecommencingboth beforeandafteritsdateofissue.However,thisRulingwillnotapply totaxpayerstotheextentthatitconflictswiththetermsofa settlementofadisputeagreedtobeforethedateofissueofthis Ruling.

CommissionerofTaxation

21April2010

2 Asdefinedinsection17AoftheSISA.

3 AformerSMSFisafundthathasceasedbeingaSMSFandhasnotappointeda registrablesuperannuationentity(RSE)licenseeastrustee–seesubsection10(4) oftheSISA.

Appendix1–Examples

ThisAppendixisprovidedasinformationtohelpyou understandhowtheCommissioner’sviewhasbeenreached.

Example1

20.Andrewworksforalargeinternationalgroupofcompanies. Heandhiswife,Jane,aretrusteesandmembersoftheirSMSF. From1February2009Andrewistransferredtoanoverseascompany foranindefiniteperiodoftime.InaccordancewiththerelevantState legislation,Andrewandhiswifeeachexecuteanenduringpowerof attorneyinfavouroftheirfriendandretiredaccountant,Trevor.In addition,AndrewandJanebothresignastrusteesoftheirSMSFand appointTrevorasthetrustee.TheappointmentofTrevorastrusteeis inaccordancewiththetermsofthetrustdeed.Otherthanthefact thatAndrewandJanearenottrusteesoftheSMSF,the superannuationfundsatisfiestheotherrequirementsofthedefinition ofanSMSFinsubsection17A(1).

21.Trevorisalegalpersonalrepresentativeofbothofthe members,AndrewandJane,byvirtueofholdinganenduringpower ofattorneyinrespectofeachofthem.Inaddition,Trevorisnowthe trusteeoftheSMSFinplaceofbothAndrewandJane.Once appointedastrustee,Trevorissubjecttocivilandcriminalpenalties intheeventthathebreacheshisduties.Providedthattheenduring powerofattorneyremainsvalidduringtheperiodTrevoristhetrustee andgiventhattheotherrequirementsofsubparagraph17A(3)(b)(ii) aresatisfied,thesuperannuationfundcontinuestosatisfythe definitionofanSMSFinsubsection17A(1),notwithstandingthat AndrewandJanearenolongertrustees.4

Example2

22.TakingthesituationinExample1,ifAndrewweretotravel overseasbyhimselfandexecuteanenduringpowerofattorneyin favourofhiswife,Jane,Andrewwouldstillberequiredtoresignas trusteeoftheSMSF.However,asJaneisalreadyatrusteeofthe SMSF,shedoesnotneedtobere-appointedinhercapacityaslegal personalrepresentativeforAndrew.5

4 TheappointmentofTrevorastrusteewillnotnecessarilyresultintheSMSF continuingtobean‘Australiansuperannuationfund’whileAndrewandJaneare residingoverseas.PleaserefertoTaxationRulingTR2008/9Incometax:meaning of'Australiansuperannuationfund'insubsection295-95(2)oftheIncomeTax AssessmentAct1997formoreinformation.

5 TheresignationofAndrewastrusteewillnotnecessarilyresultintheSMSF continuingtobean‘Australiansuperannuationfund’whileheisresidingoverseas. PleaserefertoTR2008/9whichconsidersthemeaningof‘Australian superannuationfund’formoreinformation.

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Example3

23.ClareisthememberofasinglememberSMSF.Thetrustees oftheSMSFareClareandherdaughter,Jan.Clarehasfoundthat, asshenearsretirement,theresponsibilitiesofbeingatrusteeofthe SMSFhavebecometoodifficultandtimeconsumingforher.She executesanenduringpowerofattorneyforJaninaccordancewith Statelegislation.Clareresignsastrustee,leavingJanasthesole trustee.OtherthanthefactthatClareisnotatrusteeoftheSMSF, thefundsatisfiestheotherrequirementsofthedefinitionofanSMSF insubsection17A(1).

24.JanisalegalpersonalrepresentativeforClarebyvirtueof holdinganenduringpowerofattorneyinrespectofClare.Inaddition, JanistrusteeoftheSMSFinplaceofClare.Providedthatthe enduringpowerofattorneyremainsvalidduringtheperiodwhilstJan istheonlytrusteeandgiventhattheotherrequirementsof subparagraph17A(3)(b)(ii)aresatisfied,Clare’ssuperannuationfund continuestosatisfythedefinitionofanSMSFinsubsection17A(2), notwithstandingthatClareisnolongeratrusteeofherfund.

Example4

25.ChrisandMariearemembersofanSMSF,thetrusteeofwhich isClearPtyLtd.ChrisandMariearethedirectorsofClearPtyLtd.

26.ChrisandMarieowntheirownyachtanddecidetogoona cruisearoundtheworldforanindefiniteperiodoftime.Chrisand Mariehavethreechildren(Rick,CassandraandCaroline)andthey haveeachgrantedanenduringpowerofattorneytoallthreeoftheir childrentobeexercisedjointlyinaccordancewithStatelegislation. Undereachjointenduringpowerofattorney,thechildrenarerequired toacttogether,andneverseparatelyorseverally,inrelationtoany activityundertakenasattorneys.

27.ChrisandMarieresignasdirectorsofClearPtyLtdandRick, CassandraandCarolineareappointedasdirectorsintheirplace. OtherthanthefactthatChrisandMariearenotdirectorsofClear PtyLtd,thefundsatisfiestheotherrequirementsofthedefinitionof anSMSFinsubsection17A(1).

28.Rick,CassandraandCarolinearealllegalpersonal representativesofbothChrisandMariebyvirtueofeachofthe enduringpowersofattorneyexecutedbyChrisandMarie.Inaddition, Rick,CassandraandCarolinearenowdirectorsofthecorporate trusteeinplaceofChrisandMarie.Onceappointedasdirectors, Rick,CassandraandCarolinewillactintheircapacityasdirectorand willnotbeboundbytherequirementsattachingtotheenduring powersofattorney.Thismeansthattheymayactseparatelyor severallyinrelationtotheiractivitiesasdirectors,andaresubjectto civilorcriminalpenaltiesintheeventofabreachofduties.Further, providedthattheenduringpowersofattorneyremainvalidduringthe periodwhilstRick,CassandraandCarolinearedirectors,andgiven thattheotherrequirementsofsubparagraph17A(3)(b)(ii)are satisfied,ChrisandMarie’ssuperannuationfundcontinuestosatisfy thedefinitionofanSMSFinsubsection17A(1),notwithstandingthat ChrisandMariearenolongerdirectorsofthecorporatetrusteeofthe fund.6

Example5

29.EwanisamemberofatwomemberSMSFwithhissister.The SMSFhasacorporatetrustee,TransitionalPtyLtd,ofwhichthepair aredirectors.

30.Ewanhasrecentlyretiredandplanstotravelextensively. Consequently,hewantstoputarrangementsinplaceforthe managementofhisaffairsinhisabsence.Ewanexecutesan enduringpowerofattorneyinfavourofhisfather,Andrew,whohe alsonominatesasanalternatedirectorofTransitionalPtyLtd.Ewan doesnotstepdownasadirectorhimselfandfulfilstheresponsibilities ofthatrolewhileheisnottravelling.

31.AndrewisalegalpersonalrepresentativeofEwanbyvirtueof holdinganenduringpowerofattorney.Inaddition,asanalternate director,AndrewisonlyadirectorofTransitionalPtyLtdwhileheis performingthedutiesofthatroleinplaceofEwan.Providedthatthe enduringpowerofattorneyremainsvalidduringanyperiodwhen Andrewisperformingtheseduties,andgiventhattheother requirementsofsubparagraph17A(3)(b)(ii)aresatisfied,Ewan’s superannuationfundcontinuestosatisfythedefinitionofanSMSFin subsection17A(1),notwithstandingthatAndrewisadirectorofthe corporatetrusteeofthefund.

6 TheappointmentofRick,CassandraandCarolineasdirectorswillnotnecessarily resultintheSMSFcontinuingtobean‘Australiansuperannuationfund’whileChris andMarieareoverseas.PleaserefertoTaxationRulingTR2008/9whichconsiders themeaningof‘Australiansuperannuationfund’formoreinformation.

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Appendix2–Explanation

ThisAppendixisprovidedasinformationtohelpyou understandhowtheCommissioner’sviewhasbeenreached.

Backgroundinformation

32.Thedefinitionofa‘selfmanagedsuperannuationfund’was insertedintotheSISAin1999.7 SMSFswereformerlyknownas ‘excludedsuperannuationfunds’.Thepolicyreasonfortheconditions thatessentiallyprohibitpersonsotherthanmembersfrombeinga trusteeofthefund(oradirectorofthecorporatetrusteeofthefund) wasexplainedasfollows:

B.Allmembersaretrusteesandtherearenoothertrustees

Undertheexistingdefinitionanexcludedsuperannuationfundmay containmembersthatareatarmslengthfromthetrustees,for example,non-relatedemployeesofthefundsemployer-sponsor. Thesemembersoftenlackaclearcommonalityofinterestand equalityofinfluenceoverthemanagementofthefundincomparison toothermembersofthefund.

Therequirementthatallmembersbetrusteeswillensurethateach memberisfullyinvolvedandhastheopportunitytoparticipate equallyinthedecisionmakingprocessesofthefund(thatis,thatthe fundistrulyselfmanaged).(emphasisadded)8

33.Anotherpolicyreasonprovidedforthisstrictrequirementwas thatSMSFsareexemptfrommanyoftheprudentialrequirements underSISAthathavetheeffectofprotectingmembers’interests.9

Explanation

34.Section17Asetsouttheconditionsthatafundmustsatisfyin ordertobeanSMSF.Oneparticularrequirementisthateach memberofanSMSFisalsoatrusteeoftheSMSF,oradirectorof thecorporatetrusteeoftheSMSF.10 Further,otherthaninthecaseof singlememberfunds,11 eachtrusteeoftheSMSF(ordirectorofthe corporatetrustee)isalsoamemberoftheSMSF.12

35.Subsection17A(3)prescribescertainlimitedsituationsin whichapersonotherthanamembermaybeatrusteeofanSMSF, oradirectorofthecorporatetrusteeoftheSMSF.

7 SuperannuationLegislationAmendmentAct(No.3)1999

8 ExplanatoryMemorandum(EM)totheSuperannuationLegislationAmendmentBill (No.3)1999,item22.

9 EMtotheSuperannuationLegislationAmendmentBill(No.3)1999.

10 Paragraph17A(1)(d).

11 Singlememberfundsmayhaveoneortwodirectorsortwoindividualtrustees (paragraphs17A(2)(a)and(b)).

12 Paragraphs17A(1)(b)and(c).

36.Subsection17A(3)states: Asuperannuationfunddoesnotfailtosatisfytheconditions specifiedinsubsection(1)or(2)byreasononlythat:

(a)amemberofthefundhasdiedandthelegalpersonal representativeofthememberisatrusteeofthefundora directorofabodycorporatethatisthetrusteeofthefund,in placeofthemember,duringtheperiod:

(i)beginningwhenthememberofthefundhasdied; and

(ii)endingwhendeathbenefitscommencetobe payableinrespectofthememberofthefund;or

(b)thelegalpersonalrepresentativeofamemberofthefundis atrusteeofthefundoradirectorofabodycorporatethatis thetrusteeofthefund,inplaceofthemember,duringany periodwhen:

(i)thememberofthefundisunderalegaldisability;or

(ii)thelegalpersonalrepresentativehasanenduring powerofattorneyinrespectofthememberofthe fund;or

(c)ifamemberofthefundisunderalegaldisabilitybecauseof ageanddoesnothavealegalpersonalrepresentative–the parentorguardianofthememberisatrusteeofthefundin placeofthemember;or

(d)anappointmentundersection134ofanactingtrusteeofthe fundisinforce.

37.Inbothparagraphs17A(3)(a)and(b)thepersonthatmaybe atrusteeoftheSMSF,oradirectorofthecorporatetrustee,inplace ofthememberisthelegalpersonalrepresentativeofthemember.

38.Consistentwiththemodernapproachtostatutory interpretation13 theoperationofsubparagraph17A(3)(b)(ii)shouldbe determinedbyhavingregardtothecontextinwhichtheprovision appears.Therelevantcontextincludesthepolicyunderpinningthe provisions,14 theschemeoftheSISAasawholeandthepowersof attorneyandtrusteelegislationofeachStateandTerritoryof Australia.15

13 CICInsuranceLtdv.BankstownFootballClubLtd(1997)187CLR384.

14 Refertoparagraphs32and33ofthisRuling.

15 Thecourtshaveexpressedtheviewthatunlessthetrusteelegislationortherules governingthetrustprovidetothecontrary,theprinciplesofthegenerallawof trustsappliestosuperannuationfunds.See,forexample,Cowanv.Scargill[1985] Ch270at292;[1984]2AllER750at764andLockv.WestpacBanking Corporation(1991)25NSWLR593at609-610.

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Legalpersonalrepresentativeofamemberofthefund

39.Subsection10(1)definesa‘legalpersonalrepresentative’as: …theexecutorofthewilloradministratoroftheestateofa deceasedperson,thetrusteeoftheestateofapersonunderalegal disabilityorapersonwhoholdsanenduringpowerofattorney grantedbyaperson.

40.Whereapersonhasbeengrantedanenduringpowerof attorneybyamemberofanSMSFthepersonwillqualifyasalegal personalrepresentativeunderthethirdlimbofthedefinition.That personwillalsobealegalpersonalrepresentativeforthepurposesof subparagraph17A(3)(b)(ii).

Enduringpowerofattorney

41.Apowerofattorneythatisnotan‘enduringpowerofattorney’ willnotbesufficienttosatisfytherequirementsofeither subsection10(1)orsubparagraph17A(3)(b)(ii).16 Iftheattorneyin thesecircumstancesbecomesatrusteeofthefund,oradirectorof thecorporatetrustee,thestatusofthefundasanSMSFwillnotbe maintained.

42.Theconceptofan‘enduringpowerofattorney’isnotdefined intheSISA.Thisconcepthasaspecificlegalmeaning.Anenduring powerofattorneyisapowerauthorisedbystatutewhichsurvivesthe legalincapacityofthedonor.17 EachStateandTerritoryinAustralia hasenactedlegislationthatdealsspecificallywithenduringpowersof attorney.18 Regardmustbehadtothesespecificprovisionstoensure thatanenduringpowerofattorneyisvalid.

43.Whileanenduringpowerofattorneyisintendedtosurvivethe legalincapacityofthedonor,thelegislationofeachjurisdiction enablesthedonortoauthorisethedoneetoexercisethosepowers whilethedonorislegallycapable.Anenduringpowerofattorneythat isinvokedwhilethedonorislegallycapableisonewhichsatisfiesthe requirementsofbothparagraph10(1)andsubparagraph17A(3)(b)(ii).

16 Formoreinformationondelegationoftrustee’sdutiesseeparagraphs123to127 ofTR2008/9.

17 CollierBandLindsayS1992,PowersofAttorneyinAustraliaandNewZealand, TheFederationPress,Australia,p.131.

18 PowersofAttorneyAct2003(NSW)Part4,Division2;PowersofAttorneyAct 2006(ACT)Chapter5;PowersofAttorneyAct1980(NT)section13;Powersof AttorneyAct1998(Qld)Chapter3;PowersofAttorneyandAgencyAct1984(SA) section6;PowersofAttorneyAct2000(Tas)Part4;InstrumentsAct1958(Vic) PartXIA;GuardianshipandAdministrationAct1990(WA)Part9.

Requirementthatlegalpersonalrepresentativebeappointedas trusteeoftheSMSForadirectorofthecorporatetrustee

44.Theexceptionsinparagraph17A(3)(b)applyonlywherethe legalpersonalrepresentative‘isatrusteeofthefundoradirectorofa bodycorporatethatisthetrustee…inplaceofthemember’.In addition,thereareproscriptionsinsomeStateorTerritorylegislation againsttransferringtrusteedutiesunderapowerofattorney.19 Further,underthecommonlaw,apowerofattorneydoesnotitself giveapersonauthoritytoactinplaceofthedirectorofacompany.20 Therefore,itisconsideredthatparagraph17A(3)(b)requiresthat:

thelegalpersonalrepresentativebeappointedasa trusteeoftheSMSF,oradirectorofthecorporate trustee.Thisisbecausethelegalpersonal representativedoesnotbecomeatrusteeofthefund, oradirectorofthecorporatetrustee,merelybyvirtue ofholdinganenduringpowerofattorney;and

thememberceasetobeatrusteeoftheSMSF,orasa directorofthecorporatetrusteeoftheSMSF,except wherethelegalpersonalrepresentativeisappointed asanalternatedirector.

45.Further,inordertobeappointedasatrusteeoradirectorof thecorporatetrustee,thelegalpersonalrepresentative: mustconsentinwritingtotheappointmentasatrustee orasadirectorofthecorporatetrustee;21and cannotbeadisqualifiedpersonasdefinedunder section120;22and

mustsignadeclarationstatingthattheyunderstand theirdutiesasatrusteenolaterthan21daysafter theirappointmentastrustee,orasadirectorofthe corporatetrustee.23

19 SeeforexamplePowersofAttorneyAct2003(NSW)section10;Powersof AttorneyandAgencyAct1984(SA)subsection5(4);InstrumentsAct1958(Vic) subsection107(2)

20 Manciniv.Mancini(1999)17ACLC1570at1577-1578whereitwasheldthatthe officeofadirectorisapersonalresponsibilityanditisnotapropertyrightcapable ofbeingexercisedbyanattorneyorothersubstituteordelegateoftheperson holdingtheoffice;seealsoCheerineGroup(International)PtyLtdv.Yeung[2006] NSWSC1047.

21 Section118.

22 Undersubsection126K(1),itisanoffenceforadisqualifiedpersontoactas trusteeofasuperannuationentityandundersubsection126K(4)itisanoffencefor adisqualifiedpersontoactasaresponsibleofficerofacorporatetrustee.

23 Section104A.Notethatthisrequirementonlyappliestoappointmentsafter 30June2007.

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46.Itshouldalsobenotedthatnotrustee,ordirectorofa corporatetrustee,canreceiveremunerationfromthefundorany personforanydutiesorservicesperformedbythetrusteeordirector inrelationtothefund.24

47.Furtherissuesspecifictoindividualtrusteesanddirectorsofa corporatetrusteeareoutlinedinparagraphs48to55ofthisRuling.

Individualtrustee

48.Thelegalpersonalrepresentativewillneedtobeappointedas atrustee,andthememberremovedasatrustee,inaccordancewith therelevantprovisionsofSISA,theSMSF’strustdeedandStateor Territorytrusteelegislation.Inparticular,theSMSF’strustdeedwill havetoallowfortheappointmentofapersonwhoisnotamemberof thefundasatrusteeinplaceofthemember.

49.InReSmith;Eastickv.SmithFarwellJstatedthat:25 Everypowergiventotrusteeswhichenablesthemtodealwith,or affect,thetrustproperty,isprimafaciegiventothemexofficioasan incidentoftheiroffice,andpasseswiththeofficetotheholdersor holderthereofforthetimebeing.Whetherapowerissogivenex officioornot,dependsineachcaseontheconstructionofthe documentgivingit;butthemerefactthatthepowerisonerequiring theexerciseofaverywidepersonaldiscretion,isnotenoughto excludetheprimafaciepresumption.

50.Therefore,afterappointmentasatrusteeoftheSMSF,thelegal personalrepresentativederiveshisorherauthoritytoadministerthe fundfromtheirpositionasatrusteeofthefund,andnotasanagentfor thememberundertheenduringpowerofattorney.Consequently,any proscriptionscontainedinStateorTerritorylegislationagainstconferring trusteedutiesandpowersviaapowerofattorneyarenotrelevanttothe operationofsubparagraph17A(3)(b)(ii).26

Directorofcorporatetrustee

51.InthecaseofanSMSFthathasacorporatetrustee,thelegal personalrepresentativemustbeappointedasadirectorofthe corporatetrustee,andthemembermustceasetobeadirector (exceptinthecaseofalternatedirectors),inaccordancewiththe company’sconstitution(ifany)andtherelevantrulesforthe appointmentofdirectorscontainedintheCorporationsAct.

24 Paragraphs17A(1)(f)&(g)orparagraphs17A(2)(c)&(d).

25 ReSmith;Eastickv.Smith[1904]1Ch139at144.

26 Seeparagraph44ofthisRulingforexamplesofsuchproscriptions.

52.Amembermayalsoappointtheirlegalpersonal representativewhoholdsanenduringpowerofattorneyasan alternatedirectorinaccordancewiththecorporatetrustee’s constitution(ifany)orsection201KoftheCorporationsAct (replaceablerule).27

53.Analternatedirectorisappointedbyadirectorofacompany toexercisesomeorallofthedirector’spowersforaspecified period.28 Analternatedirectorhasnolegalstandingasdirectorunless theyareentitledorempoweredtoactinthatrole.29 Inaddition,an alternatedirectorisonlyadirectorwhiletheyareactinginthat position.30 Whiletheyareintheroletheyaresubjecttothenormal dutieswhichadirectorowestothecompany.31 Theappointing directorremainsinthepositionofdirector(togetherwithallthe responsibilitiesthatattendthatposition)evenwhilethealternate directorisexercisingthosepowers.32

54.Assubparagraph17A(3)(b)(ii)requiresthelegalpersonal representativetoexercisethoseduties‘inplaceof’themember,the legalpersonalrepresentative,asalternatedirector,mustexercise thosedutiesintheirownrightandnotasanagentforthemember.In addition,thetermsoftheappointmentmustonlyempowerthelegal personalrepresentativetoactasadirectorwhenthememberisnot performingthosedutiesthemselves.Thealternatedirectorwillbe personallyliablefordecisionsthatheorshemakesintheircapacity asalternatedirector.

55.Whetherthelegalpersonalrepresentativeisappointedasa directorintheirownrightorisactingasanalternatedirector,they administerthefundintheircapacityasadirectorofthecorporate trustee,notasanagentforthememberundertheenduringpowerof attorney.Therefore,thelegalpersonalrepresentative’sauthorityto performthedutiesofadirectorofthecorporatetrusteeisderived fromhisorherpositionasadirectorofthecorporatetrusteeandnot fromtheenduringpowerofattorney.

27 Refertosection201KoftheCorporationsActforthespecificrequirementsfor appointingalternatedirectors.

28 Subsection201K(1)oftheCorporationsAct

29 PlaycorpPtyLtdv.Shaw(1993)10ACSR212

30 Seethedefinitionof‘Director’insection9oftheCorporationsAct.

31 MarkwellBrosPtyLtdv.CPNDiesels(Qld)PtyLtd[1983]2QdR508;(1982)7 ACLR425at433;PlaycorpPtyLtdv.Shaw(1993)10ACSR212

32 Androvinv.Figliomeni(1996)14ACLC1461at1470.Inthiscase,OwenJstated thatthemereappointmentofanalternatedirectordidnotofitselfentitlethe respondenttoclaimthathedidnotconsenttotheincurringofdebtsbytheother directorwhilethecompanywasinsolvent.

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Validityofenduringpowerofattorney

56.Theexceptioninsubparagraph17A(3)(b)(ii)appliesduring anyperiodwhenthelegalpersonalrepresentativehasanenduring powerofattorneyinrespectofthemember.Itisimplicitinthis requirementthattheenduringpowerofattorneyiscurrentand accordswiththerelevantStateorTerritorypowersofattorney legislationatalltimesduringwhichthelegalpersonalrepresentative isatrustee,oradirectorofacorporatetrustee,inplaceofthe member.Thus,iftheenduringpowerofattorneyhasbeen,forany reason,terminated,oneoftheconditionsintheexceptioncontained insubparagraph17A(3)(b)(ii)isnotsatisfied.Insuchsituations,the formerlegalpersonalrepresentativemustresignandthemember mustbere-appointedasatrustee,oradirectorofthecorporate trustee,inorderforthefundtocontinuetomeetthedefinitionofan SMSFinsubsections17A(1)or17A(2).33

ObligationsimposedontrusteesofSMSFs

57.Beforeacceptinganappointmentasatrustee,oradirectorof acorporatetrustee,ofanSMSFthelegalpersonalrepresentative mustensurethattheyareawareoftheduties,responsibilitiesand obligationsofbeingatrusteeoradirectorofacorporatetrustee.The duties,responsibilitiesandobligationsareimposedbytheSISAand otherlegislation(suchastheTaxationAdministrationAct1953or,in thecaseofadirectorofacorporatetrustee,theCorporationsAct).34

58.AsatrusteeoftheSMSF,oradirectorofthecorporate trustee,thelegalpersonalrepresentativeissubjecttociviland criminalpenaltiesforanybreachesoftheirdutiesundertheSISAor otherlegislation.Alegalpersonalrepresentativewhoisadirectorof thecorporatetrusteeisalsosubjecttocivilandcriminalpenaltiesfor breachesoftheCorporationsAct.

59.Ifalegalpersonalrepresentative,asatrusteeofanSMSF,isin breachofthetrustdeed,orfailstoexercisetheirpowersreasonably,in goodfaithandforthepurposesforwhichtheywereconferred,civil actionmaybebroughtagainstthelegalpersonalrepresentativeby membersoftheSMSF(asbeneficiariesofthetrust).35

33 WhereasuperannuationfundceasestomeetthedefinitionofanSMSFin subsections17A(1)or17A(2)duetothechangeintrusteesordirectors, subsection17A(4)wouldceasetobeanSMSFfromtheearlierofanRSElicensee trusteebeingappointedor6monthsafterthedefinitionceasedtobesatisfied.

34 Forfurtherdetailedinformationontheduties,responsibilitiesandobligations imposedonSMSFtrusteesrefertothepublicationRunningaselfmanagedsuper fund(NAT11032)availableonwww.ato.gov.au

35 DalPont,GEandChalmers,DRC2004,EquityandTrustsinAustralia,3rd edn, LawbookCo,Australia,p745.

Membersdisqualifiedfrombeingtrustees

60.Whereamemberisdisqualifiedfrombeingatrustee,ora directorofthecorporatetrustee,ofanSMSFundersection120, subsection17A(10)preventstheexceptionsinsubsection17A(3) fromapplyinginrespectofthatmember.Consequently,ifalegal personalrepresentativeofthatmemberisappointedasatrustee,ora directorofacorporatetrustee,inplaceofthatmember,the superannuationfundwillceasetosatisfythedefinitionofanSMSF undersubsections17A(1)and17A(2).

Oneforonesubstitutionisnotnecessary

61.Thequestionarisesastowhethersatisfactionofthe conditionsinsubparagraph17A(3)(b)(ii)requiresapreservationofthe numberoftrustees,ordirectorsofthecorporatetrustee,dictatedby subsections17A(1)or(2).Ifthatwerethecase,theninorderto satisfytheexceptioninsubparagraph17A(3)(b)(ii)eachmember couldonlybereplacedbyonelegalpersonalrepresentativewhois appointedasatrustee,ordirectorofthecorporatetrustee,ofthe fund.

62.Consideringtheexceptionscontainedinsubsection17A(3)as awhole,itisapparentthatinpracticethemajorityofthoseexceptions mayoperatetoallowsomemembersofanSMSFtobetrusteesor directorsintheplaceofothermembers,despitetheoverallaimof section17Atoprovideforequalityofinfluence.

63.Further,althoughtheterms‘legalpersonalrepresentative’, ‘parent’,guardian’,‘member’,‘trustee’,and‘director’in paragraphs17A(3)(a)to(c)areallexpressedinthesingularform, section23oftheActsInterpretationAct1901providesasfollows:

SECTION23RULESASTOGENDERANDNUMBER 23InanyAct,unlessthecontraryintentionappears:

(a)wordsimportingagenderincludeeveryother gender;and

(b)wordsinthesingularnumberincludethepluraland wordsinthepluralnumberincludethesingular.

64.Therefore,takingintoaccountthestructureandeffectofthe exceptionscontainedinsubsection17A(3)asawhole,itisimplicit thatthewordsofparagraphs17A(3)(a)to(c)shouldnotbereadas beingrestrictedtoonlyaoneforonesubstitutionofthelegalpersonal representative(orparentorguardian)forthememberastrusteeof thesuperannuationfund(ordirectorofthecorporatetrustee).

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Page16of19 Pagestatus:notlegallybinding

65.Toreadsubparagraph17A(3)(b)(ii)asonlyallowingaonefor onesubstitutionofalegalpersonalrepresentativeinplaceofa member,wouldbeinconsistentwiththeotherpartsofthesubsection. Readinthiscontext,subparagraph17A(3)(b)(ii)allowsforthe following:

anexistingmemberandtrusteeordirectorcanalsobe atrusteeordirectorintheplaceofanothermember wheretheyholdanenduringpowerofattorneyforthat member;

alegalpersonalrepresentativewhoholdsanenduring powerofattorneyformorethanonemembercanbea trusteeordirectorintheplaceofoneormoreofthose members;and

whereonememberhasgrantedanenduringpowerof attorneytomorethanoneperson,oneormoreof thosepeoplecanbeappointedastrusteeordirectorin placeofthemember.

ThefundceasestosatisfythedefinitionofanSMSF

66.IfafundceasestosatisfythedefinitionofanSMSFin section17A,theCommissionerofTaxationwillretainpowersof administrationasregulatorofthefunduntilaregistrable superannuationentity(RSE)licenseeisappointedastrustee.36 The trusteemustnotifytheCommissionerwithin21daysofthefund ceasingtobeanSMSF.37

67.FundsthatnolongermeetthedefinitionofanSMSFneedto: restructurethefundtoagainmeettheSMSF conditions;

appointanRSElicenseeastrusteeandbecome regulatedunderAPRA;or windupthefund.

68.Ifthetrusteesofthefunddonotrectifythesituation,thefund’s complyingstatusmayberemoved.Anon-complyingfundistaxedat thehighestmarginaltaxrate(currently45%)onitsincomeandthe marketvalueofassetsjustbeforethestartoftheyearinwhichitis madenon-complyingratherthanonlyontheincomeofthefundatthe concessionalrateof15%.

36 Subsection10(4). 37 Section106A.

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References

Previousdraft:

SMSFR2009/D1

RelatedRulings/Determinations:

TR2008/9

Subjectreferences:

-powersofattorney

-retirementincomeentities

-selfmanagedsuperannuation funds

-SMSFstructure

-SMSFtrustee

-superannuation

Legislativereferences:

-SISA1993

-SISA199310(1)

-SISA199310(4)

-SISA199317A

-SISA199317A(1)

-SISA199317A(1)(b)

-SISA199317A(1)(c)

-SISA199317A(1)(d)

-SISA199317A(1)(f)

-SISA199317A(1)(g)

-SISA199317A(2)

-SISA199317A(2)(a)

-SISA199317A(2)(b)

-SISA199317A(2)(c)

-SISA199317A(2)(d)

-SISA199317A(3)

-SISA199317A(3)(a)

-SISA199317A(3)(b)

-SISA199317A(3)(b)(ii)

-SISA199317A(4)

-SISA199317A(10)

-SISA1993104A

-SISA1993106A

-SISA1993118

-SISA1993120

-SISA1993126K(1)

-SISA1993126K(4)

-ITAA1997295-95(2)

-CorporationsAct2001

-CorporationsAct2001201K

-CorporationsAct2001201K(1)

-ActsInterpretationAct190123

-SuperannuationIndustry (Supervision)Regulations1994

-TAA1953

-SuperannuationLegislation AmendmentAct(No.3)1999

Pagestatus:notlegallybinding

-GuardianshipandAdministration Act1990(WA)Pt9

-InstrumentsAct1958(Vic)PtXIA

-InstrumentsAct1958(Vic)107(2)

-PowersofAttorneyAct2006 (ACT)Ch5

-PowersofAttorneyAct2003 (NSW)Pt4Div2

-PowersofAttorneyAct2003 (NSW)10

-PowersofAttorneyAct1980 (NT)13

-PowersofAttorneyAct1998 (Qld)Ch3

-PowersofAttorneyand AgencyAct1984(SA)6

-PowersofAttorneyand AgencyAct1984(SA)5(4)

-PowersofAttorneyAct2000 (Tas)Pt4

Casereferences:

-Androvinv.Figliomeni(1996) 14ACLC1461

-CheerineGroup(International) PtyLtdv.Yeung[2006] NSWSC1047

-CICInsuranceLtdv.Bankstown FootballClubLtd(1997)187 CLR384141ALR618

-Cowanv.Scargill[1985]Ch 270;[1984]2AllER750

-Lockv.WestpacBanking Corporation(1991)25NSWLR 59343IR121

-Manciniv.Mancini(1999)17 ACLC1570[1999]NSWSC799

-MarkwellBrosPtyLtdv.CPN Diesels(Qld)PtyLtd[1983]2 QdR508;(1982)7ACLR425

-PlaycorpPtyLtdv.Shaw (1993)10ACSR212(1993) 11ACLC641

-ReSmith;Eastickv.Smith [1904]1Ch139

Otherreferences:

-AustinRP,FordHAJand RamsayIM2005,Company Directors:PrinciplesofLaw andCorporateGovernance, LexisNexisButterworths Australia

SelfManagedSuperannuationFundsRuling

Pagestatus:notlegallybinding

Page19of19

-CollierBandLindsayS1992, PowersofAttorneyinAustralia andNewZealand,The FederationPress,Australia

-DalPont,GEandChalmers DRC2004,EquityandTrusts inAustralia3rdedn,Lawbook Co,Australia

ATOreferences

NO:2008/18732

1-1PEG5LM

ISSN:1835-2138

-ExplanatoryMemorandumto theSuperannuationLegislation AmendmentBill(No.3)1999

-Runningaselfmanagedsuper fund(NAT11032)

-TheLawsofAustralia, ThomsonLegalOnline

ATOlawtopic:SuperannuationEntities~~Selfmanagedsuperannuation funds