Your superannuation fund deed should reflect the latest changes to Australia’s superannuation system, which will allow you to take advantage of the new super opportunities.

Typically, when an advisor or client thinks about a particular transaction or activity they first try and see what the law allows, including looking at the tax consequences and considering what the regulator thinks.

Ideally however, we should first check what the trust deed allows before proceeding to look at the law. The fact is that there is no more important document than the trust fund deed.

The fund deed should be flexible and allow the fund’s trustee and members to take advantage of the numerous strategies that are being implemented to increase members wealth within superannuation environment.

In this regard, I highlight the main issues and strategies that should be provided for in your super fund deed.

Pensions

The flexibility created by the new account based pensions and tax-free status of pension assets after 60 will mean a significant increase in the use of these pensions as well as transition to retirement pensions.

Your fund deed should provide for the payment of these pensions as well as the payment of allocated pensions and market linked pensions.

Further, your fund deed should allow for the operation of a reserve account, which can be used to implement strategies that involve enjoying the same low tax concessions as the members' account, in an unallocated account.

Your fund deed must allow a member to maintain more than one account balance in the fund, and to have that account regarded as a separate superannuation interest for taxation purposes, which will allow the member to take advantages of strategies that involve the splitting of superannuation interests to quarantine taxable and untaxed components.

Contributions

Your fund deed must give the member maximum flexibility in making contributions, as follows:

• the trustee must be able to accept any amount of contribution in any form, provided that the law allows it. This will allow members to contribute shares or property into the fund and take advantage of strategies involving property development in superannuation etc;
• be compliant with the Family Law Act 1975;
• accept co-contributions;
• allow superannuation splitting arrangements; and
• provide for the preservation of all contributions and the contribution rule changes at ages 55, 60, 65, 70 and 75.

1. Pensions and Annuities

Your fund deed should give members maximum flexibility in the payment of their benefits as follows:

• allow for alternative forms of benefits to be paid to a member ie. pensions, annuities and/or lump sum payments;
• allow for transfers to and from approved benefit arrangements;
• provide that the member’s benefit does not have to be compulsory cashed out, which will allow a member to use superannuation as a wealth creation vehicle; and
• allow assets to be paid to a member or transferred to a legal personal representative in lieu of cash.

2. Death Benefits

The ATO in Interpretive Decision ATO ID 2004/688 (“ID”) suggests that, if assets are sold for the purpose of making payment to your estate or nominated beneficiaries, the resulting realised capital gains are subject to tax, resulting potentially in a large CGT liability.

Accordingly, your fund deed must be drafted so that the deceased member’s pension continues when their legal personal representative is paid their benefit and only ceases when the assets are realised by the legal personal representative. This allows the legal personal representative to continue to hold the assets as segregated current pension assets, until they are realised, resulting in no capital gains tax liability.

The fund deed must also allow the members to make binding death benefit nominations.

Taxation

Your fund deed should allow for the following clauses, which are taxation driven:

• CGT rollover relief on the sale of business and spouse contributions;
  for tax to be calculated at the member level;
• ability to deduct taxation from other fund interests held by a member;
• the trustee to be indemnified by a member or employer when incorrect taxation is deducted;
• an ability to credit taxation offsets where a member quotes his or her TFN after tax has been deducted and an ability to pay any refunds received to ‘former members’;
• administration costs and any investment losses be applied to no-TFN contributions which are returned to members; and
• the fund to maintain a taxation reserve.

Regulatory Requirements

The fund deed must also satisfy the mandatory requirements under the law ie. it provides that all members must be trustees etc.

If you think your trust deed requires updating or if your after further information, contact us on: (03) 9348 0188