Why it’s important to review the Trust Deed of a SMSF

General / Oct 26, 2017

Why it’s important to review the Trust Deed of a SMSF

Brent Jones

The Trust Deed of a Self Managed Superannuation Fund governs the operation of the Fund. While Superannuation Legislation changes from time to time, if the deed does not allow for certain actions then that action is not allowed and can result in audit issues and ATO sanctions. The Trust Deed should be regularly reviewed to ensure it enables the fund members to act to the extent permitted by the legislation.

The NTAA SMSF Deed has recently been updated to allow for the 2016/17 budget changes which came into effect from 1 July 2017.

A summary of the updates to the deed is as follows: Anchor

The Trustee’s overarching powers (clause 12.4) have been expanded to allow the Trustee to do anything it is permitted to do under superannuation law and to require the Trustee to do everything necessary to comply with superannuation law or any direction by the ATO. This will provide the Trustee with some level of flexibility to comply with any changes that come into force in the future.
The commutation of income stream section (clause 45) has been expanded to allow the Trustee to comply with the $1.6 million super transfer balance cap imposed on pension accounts from 1 July 2017 (subject to indexation). Where a pensioner is, or will be, in breach of their cap, the Trustee will be able to retain the excess amount in the Fund in an accumulation account or pay the excess amount in the form of a lump sum to the pensioner, subject to meeting a condition of release.
The anti-detriment payment clause in respect of death benefits (clause 46) has been amended so it only applies as long as the anti-detriment provisions are still applicable under the law. For members that die from 1 July 2017, the anti-detriment provisions will be abolished, so this clause will become redundant going forward.
The Trustee’s right to credit and debit the accumulation and pension accounts have been broadened (clauses 15 and 16) and insurance premiums may be debited from any of these accounts (clause 23.4) to maximise any tax strategies the trustee may want to implement relating to the payment of insurance proceeds into a pension account.
The provisions relating to automatic reversionary beneficiaries have been expanded to allow for the following:
- A Pensioner may at any time, whether before or after the commencement of a pension, nominate an automatic reversionary beneficiary (clause 38(e)).
- The Trustee is bound to follow a valid reversionary beneficiary nomination and it will have no discretion as to whom, or the manner in which, the pension is paid (clause 38(f)).
- A reversionary beneficiary nomination will ‘trump’ a binding death benefit nomination if both apply to a relevant pension interest (clause 44.3).
- Where there is an automatically reversionary beneficiary nomination, the Trustee cannot commute the pension unless in order to comply with the law or applicable cap on pensions, or if directed by the ATO or the reversionary pensioner.

What other changes are also allowed for under the deed?

We have reviewed the deed for the other budget changes (generally taking effect from 1 July 2017) which are already allowed for in the document, including:

The reduction of the annual concessional cap from $30,000 to $25,000 and the annual non-concessional cap from $180,000 to $100,000.
The taxation of earnings on assets supporting a transition to retirement income stream at 15%.
The availability of tax deductions for personal superannuation contributions for all individuals aged under 75 (not just self-employed individuals that satisfy the 10% test).
The change to the ‘high income contribution rules’ lowering the Division 293 threshold (the point at which high income earners pay additional contributions tax of 15%) from $300,000 to $250,000.
The removal of the election to treat certain pension payments as lump sums for tax purposes (which currently makes them tax-free up to a low rate cap of $195,000).

How can I update my deed?

We recommend that you check your existing deed and ensure that it provides for the Budget changes which came into effect on 1 July 2017.

Update your Trust Deed Here