Australia: Super nest egg - maybe not in one basket!

Taxation & Superannuation Update
Last Updated: 30 September 2012
Article by Andrew O'Bryan and Mark Payne

The Government has introduced the Superannuation Legislation Amendment (Trustee Obligations and Prudential Standards) Act 2012, which sets out covenants to be included in the governing rules of self managed superannuation funds from 1 July 2013. Section 52B of the Superannuation Industry (Supervision) Act 1993 (SIS Act) largely mirrors the existing covenants in section 52 of the SIS Act. The key addition clarifies the expectation that trustees will regularly review the investment strategy of the fund and the maintenance of reserves (if any).

New section 52C of the SIS Act will insert provisions relating to directors to be included in the governing rules of self managed superannuation funds. This section provides that the covenants applying to trustees in section 52B of the SIS Act also apply to each director of a corporate trustee. These provisions are novel in that obligations are imposed on directors personally, thus piercing the corporate veil and with it, the risk that disgruntled members could bring an action against directors for a breach of the section 52C covenants.

In our view, given each member is a director and required to be active in the management and operation of a self managed superannuation fund, the better approach is not to rely on the trustee-director covenants but to take steps to avoid any potential issues from the outset.

While the members are also the directors, it is not uncommon for family disputes on divorce or death to spill over into the management and operation of the self managed superannuation fund. These provisions are likely to give rise to disagreements without any mechanism for dispute resolution in the self managed superannuation fund context. The outcome is that section 52C will be largely inappropriate and unnecessary for family operated self managed superannuation funds.

It is crucial that members consider how they structure the fund and in particular, whether the next generation should be added to the existing fund or a separate superannuation fund established. While multiple funds will increase administrative expenses, the benefit is avoiding a costly dispute down the track. Disgruntled beneficiaries of self managed superannuation funds do not have the option of bringing a complaint regarding superannuation death benefits to the Superannuation Complaints Tribunal, but instead must bring an often costly and time consuming action in the Supreme Court.

This could be important in a blended family context for example, where Dad would like to leave his superannuation death benefits in the form of an income stream to his second wife for her life and any remaining capital is to be distributed to his children. However, the benefits vest in the second spouse who is generally not bound to receive an income stream, but can elect to take a lump sum payment of the total benefit. In addition, the second spouse is not obliged to leave the remaining capital to the step children or may not be able to as the step-children will no longer be eligible dependants of the second spouse for superannuation purposes on the death of the father.

Another potential issue arises where the step-children are members of the fund and outnumber the second spouse, effectively controlling the operation and management of the fund.

These situations are likely to provide ample ammunition for claims against directors of the corporate trustee. In this instance, maintaining separate funds, preparing binding death benefit nominations and ensuring control of the fund passes to the right person will be important in avoiding disputes.

Directors should consider how they hold their assets, who will control the fund on the death of one or more members and their estate planning more broadly.

The concept of a trustee-director was recommended by the Government's review into the governance, efficiency, structure and operation of Australia's superannuation system headed up by Jeremy Cooper (Cooper Review). In particular, the Cooper Review recommended that the:

SIS Act should be amended to create a distinct new office of 'trustee-director' with all statutory duties (including those which would otherwise be in the Corporations Act) to be fully set out in the SIS Act, along with re-focused duties for trustees.

In the Cooper Review 'Super System Review: Final Report' (Final Report), the Cooper Review panel noted the:

value in creating a distinct new office under statute, that of 'trustee-director'. The duties, powers and standards required of this office would be recorded clearly in the SIS Act and nowhere else. These statutory duties would enhance, expand and clarify the duties set out in section 52(2) of the SIS Act as well as appropriately adapt the chapter 2D directors' duties from the Corporations Act. The identification and management of conflicts of interest and of duties are a particular priority. Though conflicts are covered under the general law pertaining to trustees, it is clear from the Review's analysis that there is a need for greater clarity of what is required of superannuation fund trustees and trustee-directors in this regard.1

In light of the new obligations imposed on the directors of corporate trustees, it is an opportune time for members to consider the structure of their fund and how the fund is being operated and maintained. For example, have the members recently reviewed the fund deed and the investment strategy? Does the investment strategy deal with risk and return, liquidity, diversity and the cash flow requirements of the fund, including paying benefits to members?

Have members considered who will receive their superannuation death benefits, are enduring powers of attorney are in place if members lose capacity and have mechanisms been put in place to pass control of the fund? Are the decisions of the trustee being recorded and are the resolutions kept in a secure location with the fund deed and any binding death benefit nominations?

Putting in place strategies to address these questions will go a long way in preventing disputes and potential claims against directors from disgruntled members.

Investment strategy and insurance

The Government has introduced the Superannuation Industry (Supervision) Amendment Regulation 2012 (No 2), which amends the Superannuation Industry (Supervision) Regulations 1994 in three key respects:

  1. a trustee is required to consider whether the trustee should hold a contract of insurance that provides insurance cover on one or more members as part of the fund's investment strategy. This is particularly important where a substantial proportion of the fund's assets are illiquid, such as the business premises;
  2. a trustee is required to keep the fund assets separate from any assets held by the trustee personally or from any assets of an employer-sponsor or an associate of an employer-sponsor; and
  3. for the 2013 income year and onwards, the trustee must value assets at market value when preparing the fund's accounts and statements.

These requirements are now operating requirements for trustees and can be enforced by the Commissioner of Taxation.

The amendments are a direct response to the recommendations of the Cooper Review into superannuation and the Government's Stronger Super reforms.

The Explanatory Memorandum to the amending act explains that the valuation methods used by trustees, such as historical valuations, impact on members' ability to ascertain their current superannuation benefits.

'Market value' is defined in section 10(1) of the SIS Act as the amount a willing buyer could reasonably be expected to pay to acquire the asset from a willing seller if the following assumptions were made:

  1. the buyer and seller dealt with each other at arm's length in relation to the sale;
  2. the sale occurred after the proper marketing of the asset; and
  3. the buyer and seller acted knowledgeably and prudently in relation to the sale.
  4. The valuation should be based on objective and supportable data.

A valuation will be required from a qualified independent valuer where the trustee invests in collectibles and personal use assets and is selling the asset to a related party. A valuation from a qualified independent valuer is also recommended where the asset comprises a significant proportion of the fund's value.

In other circumstances, the valuation should be based on objective and quantifiable data, such as an appraisal from a licensed real estate agent for property. Listed securities should generally be valued as at the closing price to determine their market value.

The requirement that assets be transferred on market where an underlying market exists is currently not law, but is expected to apply from 1 July 2013 subject to the Commissioner of Taxation ensuring that the provisions do not contravene the prohibition on 'wash sales' in the Corporations Act 2001. We will keep you updated on the progress of this proposed amendment.


1 The Cooper Review 'Super System Review: Final Report – Part One: Overview and Recommendations', Chapter 2 at 5.2: Trustee Governance at page 2

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions