Changes which provide good reasons to update an SMSF deed include:
Regular updates to an SMSF's deed are necessary to ensure the deed reflects current superannuation law. An updated SMSF should:
Most SMSF professionals accept that superannuation law changes, and other regulatory reforms, require SMSF deeds to be updated from time to time. The difficult question is when to recommend their clients to update and how to justify the cost to an inherently cost-conscious client base — particularly if the professional has recommended updates in recent years.
We look at some of the reasons for updating below. In summary, they are:
As the fuller explanations below make clear, SMSF trustees and their advisers should ensure the SMSF's deed is up to date.
The ATO has made its views clear about the need to update deeds. In its recently published Setting up a self-managed super fund. What you need to know guide, the ATO states on page 12:
"As a trustee, you need to make sure the trust deed is regularly reviewed and updated so that it complies with the super laws (including changes to the law) and the members' needs."
One of the most significant reforms to superannuation law is the 'instalment warrant arrangement' provisions, which allow trustees to borrow money to invest in real estate, listed shares or any other asset that a super fund could ordinarily purchase.
However, for a trustee to borrow, the SMSF's deed must allow it to do so. You can read:
Most older SMSF deeds contain one or more of:
Last minute amendments to SMSF deeds should be avoided — they can be more expensive than a regular update. Accordingly, if an SMSF trustee intends to enter into an 'instalment warrant arrangement' it is very important that the SMSF's deed is up to date and consistent with the superannuation law and bank expectations.
Superannuation law contains specific requirements about the form in which super fund members can make binding death benefit nominations. However, there is ambiguity in the law as to whether some or all of these requirements apply to SMSFs (click here to read more about this). The main result of this is some uncertainty about whether or not binding nominations by SMSF members must expire after 3 years.
SMSF members can eliminate uncertainty about how their benefits will be paid after their death by:
Many SMSF deeds contain specific provisions about the pensions that can be paid to SMSF members. ClearLaw readers will be aware of the significant reforms to the pension rules that came into effect on 1 July, and 20 September, 2007. Following these changes, members cannot begin Allocated Pensions or Market Linked Pensions (except in very limited circumstances). Earlier changes to the superannuation law ended the ability for SMSF members to commence other forms of pensions such as Defined Benefit Pensions. Any reference to those forms of pensions in a SMSF deed is superfluous and makes the deed more difficult to read.
Some SMSF deeds do not contain a general provision that permits SMSF trustees to pay any form of pension that complies with superannuation law. Unless those deeds are updated, the current form of account-based pension cannot be paid.
Many SMSF deeds do not come with their own PDS. Nor is it common for SMSF trustees to seek to have a PDS drawn in relation to a SMSF.
Since 2004, the law generally requires SMSF trustees to provide a PDS to new members, see section 1012D(2A) of the Corporations Act 2001. There is an exception if the trustee "believes on reasonable grounds that the client (that is the new member) has received, or has, and knows that they have, access to all of the information that the Product Disclosure Statement would be required to contain". Few trustees could rely on this exception.
Accordingly, it is safest for SMSF trustees to provide new members with a professionally prepared PDS. It is also considerably more efficient for SMSFs to adopt a deed that includes or is provided with a PDS that has been prepared in conjunction with the deed.
SMSF trustees and their advisers should ensure the SMSF's deed is up to date.
For questions or more information about SMSF deeds call Maddocks in Melbourne (03 9288 0555) and ask for a member of the Maddocks Superannuation Team.
Paul is a Special Counsel in the Maddocks Commercial team with particular expertise in commercial agreements for the supply of goods and/or services, the Personal Property Securities Act 2009, the National Consumer Credit Protection Act 2009 and the National Credit Code and the Australian Consumer Law.
Paul's key areas of practice include:
Before joining Maddocks, Paul was employed for 13 years with the Victorian Department of Justice, principally as a Deputy Registrar in the Victorian Magistrate's Court, but also as a legislation, policy and project officer for the Department.
The legal information and commentary on this site is general only. Documents ordered through Cleardocs affect the user's legal rights and liabilities. To assess their suitability for the user, legal accounting and financial advice must be obtained.
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of their team.