ATO revises Trustee Declaration & Key Messages Statement

The ATO has recently revised these documents and in doing so has made some interesting changes.

The revised documents are dated December 2012 (the previous documents are dated May 2011).

The Trustee Declaration must be signed within 21 days of an individual being appointed a trustee or director of a corporate trustee of a self managed superannuation fund.  The signed Trustee Declaration must be witnessed and kept for the duration of the individual’s appointment as trustee or director (and in any event for a minimum of 10 years).

Additionally, the Trustee Declaration must be signed whenever an existing individual trustee or  director of a corporate trustee acts as a representative trustee for a member under age 18, or for an adult member who has provided them with an enduring power of attorney.

Trustee Declaration

The Trustee Declaration has been changed to reflect the new obligations upon SMSF trustees: that they regularly review the investment strategy and consider whether they should hold insurance cover for one or more members of the fund.

In describing the sole purpose test, the Declaration has been changed to include a statement that there should be a regular evaluation as to whether the SMSF remains an appropriate vehicle for achieving the retirement objectives of the members.

The Declaration now includes a warning that limited recourse borrowing arrangements can be complex and particular conditions must be met to ensure that the legal requirements are satisfied.

The Declaration has been changed to refer to the new requirement to apply from 1 July 2013: that the auditor be appointed at least 45 days before the due date for lodgement of the annual return of the fund (currently the trustees are only required to appoint the auditor at least 31 days before the due date for lodgement of the annual return).

The last significant change is the inclusion of an acknowledgment that the SMSF does not have access to the government’s financial assistance program that is available to trustees of APRA regulated funds in the case of financial loss due to fraudulent conduct or theft.

Key Messages Statement

The Statement has been changed to include a statement that even in the event of a relationship breakdown between members, the trustees or directors of the corporate trustee must continue to act in the best interests of all the members and in accordance with super laws and the trust deed.

A paragraph has been inserted to the effect that the trustees (or directors of corporate trustees) must continually reassess whether an SMSF remains the appropriate option for the member’s retirement needs.

Finally, the Statement has been changed to include a disclaimer that SMSFs are not covered by the government’s financial assistance arrangements for super funds which suffer financial loss due to fraudulent conduct or theft.  Only APRA regulated funds are covered by such financial assistance arrangements.

Headline changes

Apart from updating the Declaration and Key Messages statement for the revised investment strategy standard, the headline changes are:

•    the disclaimer that SMSFs are not covered by the financial assistance scheme; and

•    the warning that trustees should regularly assess whether an SMSF is or remains appropriate for the members.

The inclusion of the disclaimer about SMSFs being outside the financial assistance scheme is an obvious attempt to manage future criticism when another (regulated) fund manager collapses.

The warning as to the continued suitability of the SMSF seems to be driven by the issue of sub-scale (when the market value of the assets of the SMSF is too small to justify the cost of the SMSF vehicle) and also by the issue of trustee competency in advanced age (where the mental powers of trustee begin to decline).