Speaking to SMSF Adviser, Townsends Business and Corporate Lawyers principal Peter Townsend said research from the law firm indicates that in NSW, Victoria and Queensland it is not possible to digitally sign a deed in purely electronic format, and that it must be done in hard copy.
“Those people who have been offered or have taken up an offer to set up their super fund uber quickly because they’ve signed it online, will find that their document is invalid,” said Mr Townsend.
If a deed is found to be invalid, then the court could take the view that there is an “oral trust” in place, Mr Townsend explained.
“If the deed they signed is invalid, there is just an oral trust; it’s a real trust but it’s not necessarily on the terms of trust deed, and almost certainly wouldn’t comply with the SIS Act.”
There would be very substantial taxation issues arising from this, he warned, because the fund would not meet the requirements to get the tax concessions.
Mr Townsend said the legislation around documents and signatures might be something that the government needs to examine, and that the regulator needs to look at and review in the meantime.
“Now, unfortunately, the laws that I’m talking about are state laws, so they’ll need to be amended in Victoria, NSW and Queensland.”
There is also a chance that the trustees signing these trust deeds electronically could take legal action against the provider of the trust deed, if they face significant taxation consequences.
“I would think where this has been offered, there’s been a representation that the fund deed will be compliant with the SIS Act, and that representation [might be] proven to be inaccurate,” Mr Townsend said.
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I agree that a traditional trust deed (including an SMSF trust deed) cannot be validly executed electronically.
A more important question is whether an SMSF requires a common law ‘trust deed’ at all?
Section 10(1) of SISA defines a deed as “includes an instrument having the effect of a deed” and more than one lawyer has acknowledged that such an instrument can be used by trustees to adopt the rules of the fund without a formalities deed.
I cannot see the ATO making an SMSF non-compliant on the basis of electronically executing a document to adopt the rules of the fund and this article doesn’t change that view.
The ATO themselves are very comfortable with the use of electronic signatures and have been moving more and more online. They’ve even appointed Nathan Burgess as Director of “Future Client Experience for Superannuation” – how’s that for innovation!
Informative and topical as always Peter. Thanks for the contribution!