Trust deed issues highlighted with non-trustee services
With the changes to the non-arm’s length income provisions highlighting certain issues around the remuneration of trustees for non-trustee services, one law firm has flagged some of the deficiencies with trust deeds in this area.
In a recent DBA Lawyers podcast, special counsel Bryce Figot explained that while SMSF trustees are generally not allowed to be remunerated, otherwise the fund will cease to be a super fund, section 17B of the Superannuation Industry Supervision Act provides an exception, allowing trustees to be remunerated in certain circumstances.
17B allows a trustee to be remunerated for a non-trustee service where they are appropriately qualified, where they’re carrying on a business to the public and it’s at arm’s length, said DBA Lawyers director Daniel Butler.
“So, they need to meet the criteria that they’re qualified, they’re carrying on a business and the payment is in accordance with arm’s length rates. In that event, you could have a trustee who is remunerated,” Mr Butler explained.
“A typical type of scenario is a trustee who is a builder and if that builder is a sole proprietor builder, in that event 17B would allow that builder to be remunerated for services in respect to improvements for that property owned by the fund.”
However, without express wording in the trust deed providing for this remuneration in line with section 17B, this could be problematic, warned Mr Figot.
“If you look at section 17B, it doesn’t actually say that the super fund can remunerate the trustee, it just says that if the trustee is remunerated in these limited circumstances, you won’t fail the definition of a super fund, but you still need the deed to positively empower the trustee to be remunerated,” he said.
“There are still a lot of deeds to this day that just don’t give that adequate power, unfortunately.”
Mr Butler also reminded SMSF professionals that in the event someone is not remunerated when they’re entitled, then they run the risk of incurring non-arm’s length income.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates. Miranda has also directed SMSF Adviser's print publication for several years.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.