Sent: 14-07-2009 10:56:01
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SMSFs and Enduring Powers of Attorney
Last week the ATO released a draft ruling on the issue of Enduring Powers of Attorney (EPOA) and Self Managed Super Funds.
It will be sometime before the ruling is finalized but even allowing for this fact, the draft ruling is definitely worth reading as it provides much food for thought.
As is well known the super laws allow a legal personal representative with an EPoA to act as trustee for a SMSF member. Many people often wonder when and how it might apply.
Two examples spring to mind.
Firstly, suppose a SMSF trustee has reached an advanced age and no longer feels capable of making financial decisions. For many older SMSF members and trustees this is actually a ticking time bomb.
The second example involves satisfying the Australian Super Fund test. If a super fund fails one part of this three limb definition then very large tax penalties of up to 71% will apply. SMSF trustees who are overseas for extended periods of time are in particular danger of failing this ASF test especially the central control and management limb.
In both these examples it may be possible for a person's EPoA to be appointed as a self-managed fund trustee. An EPoA is a power authorised by statute which survives the mental incapacity of the donor. Note that the appointment of a power of attorney is insufficient.
So what are some of the issues about appointing an EPoA?
Each State and Territory has specific legislation that deals with this issue and all these rules in allow the attorney to exercise their powers when the donor is mentally capable. The ATO have said that in their view a power of attorney invoked when the donor is mentally capable will satisfy the relevant super laws.
The ATO say that an EPoA seeking to confer SMSF trusteeship must be broad enough to encompass this role and must not exclude superannuation or financial affairs.
Once the EPoA has been granted, the attorney must then be specifically appointed, and the member must simultaneously be removed, as a trustee of the SMSF.
Before this EPoA trustee appointment takes place the super fund's trust deed and relevant State or Territory legislation, and if relevant the corporate's constitution and the Corporations Act, should all be carefully examined.
The trust deed must allow a non-member to be a trustee and the attorney must consent in writing to be a trustee of the SMSF and the super laws must not prohibit this person from being a small fund trustee (bankruptcy etc).
The attorney must also sign the ATO's trustee declaration and is not allowed to receive any remuneration for any duty they perform in relation to the super fund.
For corporate trustees an alternate director may be appointed as a director and as an agent. The ATO say they do not think the appointment of an EPoA as an alternate director in the capacity as agent for the member satisfies the super laws.
If an EPoA is terminated for any reason then the attorney would need to step down and the member would have to be re-appointed as trustee. If this did not occur in the required time-frame the fund would cease to be a SMSF and this has other implications.
This email is general in nature only and does not constitute or convey specific or professional advice. Legislation changes may occur quickly. Formal advice should be sought before acting in any of the areas discussed. Be aware that the information in these articles may become innaccurate with time. Responsibility is disclaimed for any inaccuracies, errors or omissions. Particular investments are neither invited nor recommended and hence this publication is not "financial product advice" as defined in Section 766B of the above legislation. All expressions of opinion by contributors are published on the basis that they are not to be regarded as expressing the official opinion of any other person or entity unless expressly stated. No responsibility for the accuracy of the opinions or information contained in the contributor's articles is accepted by any other person or entity. Copyright: This publication is copyright. If you wish to reproduce this article you require a license, which can be purchased here, to do so.