SMSF – Trustee Update – what the ATO requires

Changing an SMSF Trustee? ATO’s ‘risk assessment process’

The ATO regulates SMSFs in Australia. Upon changing the SMSF trustee you notify the ATO. You let the ATO know within 28 days. That is easy to do. Our cover letter that comes with the Deed of Variation tells you how to do that.

However, what happens when you let the ATO know that you updated the SMSF trustee? The ATO carries out a ‘risk assessment process’. 

ATO’s SMSF risk assessment process – when you update the SMSF trustee

The ATO automatically starts a mini-investigation when you change your SMSF trustee. The 5 primary checks into your new SMSF trustee are:

1. Is the process of changing the SMSF Trustee correct?
   An SMSF is started by a “deed”. It must, therefore, be varied as a deed. Only law firms are legally able to provide “deeds”. Further, it is best to have the SMSF Trustee Deed legally prepared by a superannuation law firm such as Legal Consolidated.
2. Bankrupt?
   Has the new SMSF trustee been bankrupt or insolvent?
3. Criminal?
   Has the new SMSF trustee been convicted of crimes? Especially of a dishonesty nature?
4. Lodged tax returns on time in a chase and virtuous manner?
   Has the new SMSF trustee lodged tax returns on time? Has the new SMSF trustee associated with businesses that have sharp practices in the eyes of the ATO?  (This is rather naughty of the ATO. Given how I have seen it behave in Court, the ATO is not the best arbitrator of who is chaste and virtuous. It again shows why the ATO is not the best entity to look after SMSFs. The ATO does not look after retail and industry super funds. APRA looks after all non-SMSFs. Having the ATO look after SMSFs is akin to having Dracula run the blood bank.)
5. Five or Six member SMSF Funds
   In 2021 the laws changed to allow for up to 6 members of an SMSF. (It was previously only 4.) Most SMSF Deeds should have been amended at that time to allow for more than 4 members. Failure to amend leads to a breach.

Change SMSF trustee? ATO changes the SMSF public status to “regulations details withheld”

The ATO operates a website called the Super Fund Lookup.

It is the go-to website to see if a super fund is ‘compliant’. It has “Status: Complying“. Well, my SMSF states that. I hope yours does as well.

However, when you change the trustee of your SMSF then you suffer the indignity of “Status: regulations details withheld“. This is when you notify the ATO of the changes to the SMSF trustee. You must do this within 28 days. The whole world sees a change of status.

These organisations only deal with ‘complying‘ SMSFs:

• Banks – no new bank accounts, loans are rejected (perhaps permanently)
• other superannuation funds – no rollovers allowed
• employers – no contributions
• payroll providers – no contributions
• potential new members (ironically, they are the cause of the change to the SMSF trustee!)

The shameful badge of “Status: regulations details withheld” is a warning to the above. Something may be wrong.

The dreaded “Status: regulations details withheld” does not go away. You only escape this indignation when the ATO gets around to completing its ‘risk assessment process’. If you pass then your SMSF goes back to “Status: Complying“.

However, the ATO process takes time. They may also interview the new trustee or the SMSF company’s directors.

However, your SMSF is ‘complying’. This is during the ‘process’.

Our SMSF Trustee update seeks to make the ATO’s job easier.

What does the ATO say about the change of Trustee of an SMSF process?

The ATO states:

“Adding a new member or trustee
As part of our ‘secure front door’ process, we may review new trustees and members if we find a reason to. If you add a new member or trustee and we initiate a review, the SMSF is taken offline. Currently, our secure front door process takes up to 56 days to complete. This is one of the many steps we are taking to safeguard the retirement of Australians.”

Why change a trustee of a Self-Managed Superannuation Fund?

Your SMSF can have up to 6 members. If all the humans are trustees of the SMSF, then:

• SMSF trustee/member dead?
• SMSF member child about to turn 18 years of age?
• children and children-in-law about to join your SMSF?
• new member joining?

But most commonly you are converting to a company as trustee of an SMSF.

Moving from humans as trustees of your SMSF to a company as trustees of your SMSF?

The SMSF has a group of humans as human trustees of the SMSF. The members want to change to a company as trustees of the SMSF. They want to replace humans with a corporate trustee of an SMSF.

An SMSF is a trust. An SMSF has trustees. The SMSF trustee is either a human or a company

There are two choices of trustee for an SMSF:

1. all the members are the trustees of the SMSF, or
2. a company is a trustee (and the only directors are all the members)

Why a Deed for the SMSF Trustee update?

The appointment or resignation of a trustee must be carefully documented. The SMSF Trustee update is a Deed. It must be a ‘Deed’. Minutes are not enough. The Superannuation Industry (Supervision) Act 1993 (Cth) (‘SIS’) is complex.

13 requirements when an SMSF Trustee changes:

1. updating legislation to allow you to remove and change Trustees
2. removing any outgoing trustees
3. adding any new trustees complies with Moss Super Pty Ltd v Hayne [2008] VSC 158
4. confirming any trustees that are remaining
5. reduction of tax clauses for use by the Trustee
6. ensuring that there is no resettlement
7. grandfathering structures and defined benefits
8. augmenting trustee powers to comply with the latest Australian budget
9. dealing with conflicts of interest between trustees
10. increasing power of appointment and delegation for the trustees
11. allowing meetings via the Internet and other forms of communication
12. minutes to confirm and accept the Deed of Variation
13. covering letter confirming the above (for the accountant’s due diligence file)

The above reduces problems arising from divorce, ATO audit and a trustee’s death. See Katz v Grossman and oppolo & Hesford v Conti [2013] WASC 389

What do I need when I change a trustee of an SMSF?

Your Self-Managed Superannuation Fund update of your Trustee contains:

• Law firm letter confirming our law firm prepared the Deed of Variation of the SMSF to change a trustee
• Minutes for your accountant and auditor’s due diligence file
• Deed of Variation of an SMSF to:
  • update the Trustee
  • confirm that up to 6 members are permissible

Which do I do first? Update the SMSF corporate trustee or admit the member first?

It is a chicken and egg dilemma. Which do you update first? Do you make him a trustee/director or a member first?

But the SISA legislation is clear on the order of proceedings when you change an SMSF trustee.

• Have humans as the SMSF trustees? Then the new member is added as trustee of the SMSF first. The person is then immediately admitted as a member of the SMSF: 17A SISA.
• Does the SMSF have a corporate trustee? The person is appointed as a director. This is on ASIC’s website. And then immediately admitted as a member of the SMSF: 17A SISA.

Move from humans to a corporate trustee?

Your Trustee is either a Company or all the members.

• If the Trustee of your SMSF is a company then all the members are the directors of the company.
• Or, if you have no company then all the members are trustees.

See section 17A SIS Act.

Example: Mavis and John are trustees of their SMSF. By law, they must be the only members.
Example: Futuris Pty Ltd is the trustee of the Futuris SMSF. The members are Karen and Peter. Therefore, by law, the only directors of Futuris Pty Ltd are Karen and Peter.

The Legal Consolidated SMSF Trustee Update allows you to:

• Remove humans – replace them with a company
• Remove company – replace with humans as trustees
• Remove humans – replace them with humans
• Remove a company – replace it with another company

Only changing the company name of your SMSF? It is still the same company

You have a corporate trustee of your SMSF. The corporate trustee is called McDuck Pty Ltd. It is a special-purpose company. It is the trustee of your SMSF.

But you now do not like the name. So you log into ASIC and change the name of your company.

You now need to build an SMSF Change of Trustee Deed. Put in the ‘outgoing’ company name and the ABN. And put in the new ‘incoming’ company name with the same ABN.

McDuck Pty Ltd ACN 123456789 is the trustee of the Smith SMSF:

• • McDuck Pty Ltd ACN 123456789 logs into the ASIC website and changes the name of the company to Wholebright Pty Ltd ACN 123456789.
  • Start building the Change of SMSF Trustee.
  • The ‘outgoing’ SMSF trustee is McDuck Pty Ltd ACN 123456789.
  • The ‘incoming’ SMSF trustee is Wholebright Pty Ltd ACN 123456789.

Is a trustee dead, bankrupt or of unsound mind?

The SMSF Trustee update also updates your Trustees, even if they are dead or otherwise incapacitated.

There are many training videos and hints to help you as you build the SMSF Trustee Update Deed.

The corporate trustee of the SMSF is deregistered – by mistake

A corporate trustee is generally better and safer than individual trustees of your SMSF. But what if, by mistake, your company trustee of the SMSF is deregistered?

Victor Chang Cardiac Research Institute v Baltins Superannuation Fund

This is considered in the case of Victor Chang Cardiac Research Institute v Baltins Super Fund [2017] NSWSC 1671.

Ms Baltins is the sole member of the Baltin SMSF. The trustee of her SMSF is Baltins Pty Ltd. Ms Baltins dies.

After her death but before her estate is administered Baltins Pty Ltd is, sadly, deregistered. It held her SMSF property worth $1.2m.

The estate goes to the Court. It asks either that ASIC be ordered to reinstate Baltins Pty Ltd. Or, appoint a new trustee for the Baltin Super Fund.

What happens when a company is ‘deregistered’?

When a company has deregistered any property it holds vests in ASIC. ASIC holds the property in trust for the Australian government. This is under section 601AD(1A) Corporations Act 2001 (Cth). ASIC does not want to get involved. ASIC does not want to hold the job of being a trustee of an SMSF. Very wise.

Sadly, the Baltins SMSF deed is badly drafted. (It is not a Legal Consolidated SMSF.) The SMSF rules empower the members to appoint and remove trustees. But, the member ceases to be a member upon death. This is a Catch-22. A new trustee is not possible, under this set of facts.

But the Court comes to the rescue and appoints a new SMSF trustee. The SMSF assets are transferred to the new SMSF trustee.

What about updating the Members?

The Deed of Variation only updates the Trustees. It does not update the members of the Self-Managed Superannuation Fund. Your accountant and financial planner change the ‘members’ by a minute.

All Self-Managed Superannuation Funds have a ‘name’. They are a nickname. They have no force of law.

The Trustee name (e.g. Smith Nominees Pty Ltd) is NOT the trust name. The Trustee is just a trustee. Do not put in the trustee’s name. Put in the SMSF’s name.

Have a look at the original Trust Deed that set up your SMSF. Your Self-Managed Superannuation Fund is usually called after your name. For example:

1. Smith Self-Managed Super Fund
2. Mary and Colin Firth Superannuation Fund
3. Collins Family Retirement Fund

Because you are building your document directly at a law firm’s website you:

1. Retain legal Professional Privilege
2. benefit from our law firm’s Professional Indemnity Insurance
3. receive legal advice
4. get a letter on our law firm’s letterhead setting out what you have built

Only a law firm can provide the above.

Fixing mistakes in a new company. ASIC Form 492 – Request for correction

When can you NOT change the trustee of an SMSF?

You would have thought it was straightforward to change the Trustee of a Self-Managed Superannuation Fund. Not so you if you read Moss Super Pty Ltd v Hayne [2008] VSC 158.

A member died. The surviving member tried to change the trusteeship of the SMSF. She tried to appoint a company. She was the sole shareholder and director of the corporate trustee.

Trust deeds are diverse and often strange. This particular trust deed required that the ‘founder’ had to also approve the change of trustee.

The remaining member was the founder, but she did not sign in that capacity. She only signed as a ‘member’ and sole director of the new corporate trustee.

The Court said while it was a strange requirement to have in an SMSF Trust Deed, since the requirement was there it must be followed. This is even more reason to ensure that you use a law firm’s website to prepare Deeds of Variation. As superannuation lawyers our Deed of Variation to change the Trustee comply with Moss Super Pty Ltd v Hayne.

Greedy second wife vs greedy children when changing the SMSF Trustee

Perry v Nicholson [2017] QSC 163 is another example of where you need to be careful as to who prepares your Deed of Variation of your SMSF. In this case, there were two questions:

1. had the trustee of the SMSF been correctly updated?
2. was the death benefit binding nomination valid?

This was another strange requirement set out in an SMSF Deed. The deed required the Trustee to be shown a copy of the binding nomination. Otherwise, the binding nomination isn’t valid.

The result is: if the change of Trustee is not valid then the binding nomination is not valid.

What happens if the change of the SMSF trustee is invalid? The binding nomination would also fail as it was only shown to the new trustee. If the change of trustee was invalid then the binding nomination should have been shown, instead, to the original SMSF trustee (which was not done).

However, if the binding nomination was valid, the dead man’s second wife would get his superannuation.  If the binding nomination was invalid, the children of the first marriage get the super.

But as luck would have it…

Thankfully, for the second wife, the change of SMSF trustee was effective. This is the case even though the change of SMSF trustee:

1. was not done by way of Deed
2. did not comply with the SMSF Deed

I don’t believe that you should rely on the ‘luck’ of Perry v Nicholson. Instead, build the Deed of Variation to change the SMSF Trustee on our law firm’s website.

Any stamp duty on the Legal Consolidated SMSF Trustee Update?

Legal Consolidated SMSF Deeds are not dutiable. We draft them so that they do not need to be lodged for stamp duty. However, if the SMSF Deed is in the Northern Territory then you have to lodge the SMSF deed for stamping. 

Stamp duty in the Northern Territory for Legal Consolidated SMSF update Trustee deed

A Legal Consolidated SMSF deed that relates to property in the NT (even if signed outside the NT) must be lodged with the:

• NT Territory Revenue Office, GPO Box 1974, Darwin NT 0801

In the NT there is usually a ‘nominal’ fee of $20 (plus $5 for each duplicate deed). This is under section 2 of Schedule 1 and section 9B Stamp Duty Act 1978 (NT)). Upon signing you only have 60 days to complete and lodge the Stamp Duty Lodgement Form. The form is freely available from the NT Department of Treasury and Finance website.

Stamp Duty requirements for the SMSF Deed to update the trustee in New South Wales

Legal Consolidated SMSF Deeds and our deeds that amend SMSFs are not dutiable for stamp duty in NSW. See 65(10)(a) Duties Act 1997 (NSW). You do not need to lodge our deeds for stamping. 

No stamp duty in Victoria for Legal Consolidated SMSF Deed to update the SMSF trustee

No duty assessment is required for Legal Consolidated SMSF deeds that establish or amend the SMSF. See section 39 Duties Act 2000 (Vic). You do not need to lodge our deeds for stamping. 

How much stamp duty is payable on a Queensland SMSF Deed to change the trustee?

When you build on Legal Consolidated’s website SMSF Deeds and SMSF Deed Updates there is no stamp duty. And you do not need to lodge such Legal Consolidated deeds for duty. See sections 9 and 10 Duties Act 2001 (QLD). If you are moving cash or stamp dutiable property into or out of the SMSF then you will need to pay stamp duty. But, as to the Legal Consolidated SMSF deeds themselves, they are not dutiable.

The stamping of the Western Australian SMSF deed to change and update the trustee of the SMSF

No duty assessment is necessary for Legal Consolidated SMSF Deeds and deeds that amend an SMSF deed. See the Duties Act 2008 (WA). You do not need to lodge our deeds for stamping. 

Dealing with South Australian stamp duty for SMSF changes to the trustee of the SMSF

The good news here is that Legal Consolidated SMSF Deeds and SMSF Deeds of Variation are not dutiable. They do not need to be lodged. See Schedule 2, Part 2, Item 30 Stamp Duties Act 1923 (SA). However, such deeds need to be lodged if the deed moves assets or changes the interest in the underlying assets in the SMSF. For example, you move the $4m vineyard in the Barossa Valley from Mum’s account in the SMSF to Dad’s account in the SMSF.

Legal Consolidated SMSF deeds and variations are designed to not move or change any rights to the assets in the SMSF.

If your accountant is concerned, then out of an abundance of caution, lodge the Legal Consolidated SMSF Deed or variation at RevenueSA, GPO Box 1353, Adelaide SA 5001 and ask for the deed to be stamped ‘exempt’.

Update Family Trust’s Trustee

No stamp duty on Legal Consolidated ACT SMSF Deeds to change the trustee

Legal Consolidated SMSF Deeds and deeds of variation are drafted so that they have no stamp duty and are, also, not required to be lodged for stamping. See Duties Amendment Act 2008 (ACT). You do not need to lodge our deeds for stamping.

Tasmanian stamp duty on Legal Consolidated SMSF deeds to update the trustee

Happily, Legal Consolidated drafts its SMSF Deeds and variations so that they neither suffer any stamp duty nor need to be lodged. You do not need to lodge our deeds for stamping. 

Upon building the SMSF Trustee update, you receive as a PDF:

1. Deed of Variation, which updates completely the Trustees of your SMSF.
2. Minutes for the Trustee to accept the Deed of Variation
Resettlement of an SMSF occurs when a new ‘trust estate’ is created out of an old trust. When this occurs, the trustee is considered to have disposed of the assets in the old trust and accordingly, have created a new trust. This will result in significant tax implications.

Updating your SMSF Trustee through Legal Consolidated will not generally result in the resettlement of your SMSF as we retain those parts of the old Deed that are required to not affect resettlement based on both the legislation and previous court decisions.

The Australian federal government provides generous tax concessions that come from operating a ‘compliant’ self-managed superannuation fund (SMSF). However, it must be compliant. To be compliant:

1. Your fund must only ever have a maximum of 4 members at one time. You can have 1, 2, 3 or 4 members.
2. Each member must be a trustee. Each trustee must be a member. (Unless you have a company as trustee or unless there are minors as members.)
3. Instead of having all the members, as trustees, you can have a company. This is called a corporate trustee. Each member must be a director of the company. Only members can be directors.
4. You cannot have someone you employ as a member with you. This is unless that employee is related to you.
5. The trustee is a volunteer – a trustee can never draw a salary or fees for performing the job of trustee.
6. All members and trustees should be Australian residents, otherwise, you face complexity.
   The Deed of Variation that you are building Updates the Trustees.
   The rules of your SMSF Deed will not be substantively changed. By building an ‘SMSF Full Replacement’ on our website, you can update the rules of your SMSF Deed so that it complies with up-to-date legislation and regulations. Click here to build an SMSF Full Replacement.

 

Build these SMSF documents online
SMSF Deed – built over 18,000 times
Special Purpose Company – to be trustee of SMSF
Convert old Company into a Special Purpose Company – to be trustee of SMSF
Investment Strategy – ATO audit friendly
Vest and Wind up SMSF – wind up, end and close down old SMSFs – get rid of your SMSF
SMSF Loan to Third Party
Commercial lease for SMSF – where the SMSF owns the commercial property
Reversionary Pension Kit – keep your dead spouse’s super in the Super Fund
Power of Attorney for SMSF Corporate Trustee – if the director dies or has dementia, compliant with Fund Manager release forms
SMSF Training Course – includes the SMSF Deed
Update your SMSF Deed for:
1. Everything – Update Trustee, Upgrade Deed, Binding Nomination and PDS (Recommended)
2. Upgrade Deed only
3. Binding Nomination only – updates SMSF Deed as well
4. Product Disclosure Statement only – fully compliant with budget
5. Change SMSF name – no CGT or stamp duty issues