Section 17A of the Superannuation Industry (Supervision) Act
1993 (SISA) outlines basic conditions that a Self Managed Super
Fund (SMSF) must satisfy in order to be an SMSF, including that all
members of the fund must be trustees of the SMSF or directors of
the corporate trustee.
But what if a member loses capacity?
In circumstances where an SMSF member loses capacity, they can
neither be a trustee nor a director and so there is the risk that
the position of the trustee/director may become vacant.
This has the potential for some serious issues for an SMSF as it
may risk becoming a non-compliant SMSF by the ATO unless it either
arranges for a replacement APRA-approved trustee to be appointed or
the incapacitated member's benefit leaves the fund (e.g., by
being rolled over into a retail fund).
Rolling over a member's benefit into a retail fund may
require assets held within the SMSF to be sold and converted to
cash. This will often trigger significant tax consequences (e.g.,
stamp duty and capital gains tax).
How can an Enduring Power of Attorney
The SISA allows circumstances when other persons may be trustees
or directors, for example, when a member dies or becomes
Where a member has granted an Enduring Power of Attorney, then
the SMSF can comply with the legislative requirement by the
attorney becoming the trustee or director in the place of the
member. Unfortunately, most people are not aware of this very
important statutory exception to Section 17A of the SISA.
Are there any practical issues to bear in
Yes. The ATO considers that in order to comply with the
exception noted above, the attorney must actually be appointed as a
trustee or director. This means that the incapacitated
trustee/director must be removed from office so the appointment can
take place. In other words, an attorney does not automatically
become a trustee or director in place of the member. Once
appointed, the attorney performs his or her duties as a
trustee/director rather than as attorney for the member.
Also, the resignation of the incapacitated trustee and the
appointment of the attorney as trustee must be in accordance with
the SMSF's trust deed, the SISA and State or Territory Trustee
legislation. Where there is a corporate trustee, the resignation
and appointment must also be in accordance with the company's
constitution and the Corporations Act 2001.
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 Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
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”
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).