The recent case of Shail Superannuation Fund v Commissioner of Taxation highlights numerous important aspects regarding the management and administration of a self managed superannuation fund (SMSF) particularly a trustee’s fiduciary responsibility.
It has always been our view that a corporate trustee is the best option. Utilising individual trustees is possible and certainly popular – in such instances it is critical that each individual trustee is fully informed and involved in the running of the SMSF. A good starting point in that respect is the Australian Taxation Offices SMSF Trustee Declaration and its recent booklet of advice posted to each SMSF Trustee entitled “How Your Self Managed Super Fund is Regulated” and “Running a Self Managed Super Fund” and the dire consequences that can apply when each trustee is not so involved.
Shail’s case involved a SMSF with $3.5 million of investments with the husband and wife as trustees. While the couple was happily married there were no problems; when the relationship broke down the husband illegally withdrew the majority of the funds from the SMSF and left Australia. ATO deemed the fund to be non-complying due to this illegal withdrawal resulting in the funds tax liability calculated at 46.5% of its asset value at the commencement of the financial year of the illegal withdrawal. With the husband out of the picture Mrs Shail was held liable for the ATO assessment penalties and interest; while the Appeal’s Court was sympathetic it held that she had “allowed the illegal withdrawal to occur” and “as trustee of the fund she was liable”. She had breached her “fiduciary duty” to ensure that Super Laws were upheld by the fund.
Utilising a corporate trustee (in particular for new funds to be established) can substantially reduce this sort of risk and, coupled with more conservative standing banking and funding investment deposit and withdrawal procedures, should go someway to avoiding a Shail type situation. As the end of the financial year approaches it would also be timely for individual trustees to look carefully at their involvement in their respective funds and to reconsider, with appropriate financial and legal advice, whether “best practice” is being observed in respect to the administration and management of that fund.
A more fulsome article on the necessity of corporate trustees will appear in the next Atkinson Vinden Newsletter. In respect to any immediate questions or concerns please contact Chris McClure on 9411 4466.