Late last month, the Treasury released exposure draft legislation and explanatory materials for its Your Future, Your Super package for consultation, containing reforms around the obligations for trustees to consider the best interests of members as well as measures targeting underperformance and the implementation of a single default account.
According to the explanatory memorandum, the proposed regulations will amend the SIS Act to require each trustee of a registrable superannuation entity and each trustee of an SMSF to perform the trustee’s duties and exercise the trustee’s powers in the best financial interests of the beneficiaries.
Smarter SMSF chief executive Aaron Dunn said these reforms are really targeting some of the expenditure being undertaken by some of the industry funds.
Under the reforms, Mr Dunn said the introduction of the term financial into the best interests duty is also being introduced into the covenants within section 52B of the SIS Act.
“Section 52B of the SIS Act sets out a number of covenants that are taken to be included in the governing rules of SMSFs,” Mr Dunn said.
“This includes the covenant that each trustee of the fund must perform the trustee’s duties and exercise the trustee’s powers in the best interests of the beneficiaries.
“Contraventions of covenants for SMSF trustees are not civil penalty provisions, but trustees found to have breached the duty may face a number of other consequences including the issuance of a notice of non-compliance, rectification direction, education direction or disqualification.”
Under the new laws, he noted that trustees will be required to perform their trustee duties and exercise their powers in the best financial interests of the beneficiaries.
“There’s no great change here, other than to say that it is also being amended as part of the Your Super, Your Future package. Importantly, it is there to emphasise that trustees should be focused on the member’s financial interests here [rather than] more general best interests when undertaking the operations of the fund,” Mr Dunn said.
Mr Dunn pointed out that this may have some practical impacts for SMSFs, however, in terms of how they undertake certain activities and types of expenditure.
While there is no guidance on this year, Mr Dunn said taking into account the different activities that might happen within a fund, then these reforms might apply to property improvements and so forth.
“If we’re looking at undertaking certain tasks or activities for a property improvement, then we might want to obtain a number of different quotes, and if it’s being done by, say, the member, then they will want to ensure that it is being done on commercial terms at arm’s length,” he said.
“This is not suggesting that we should always go down the route of the cheapest option here, but just making sure that when it comes to an evidential point of view, that the trustees can clearly demonstrate that whatever decision has been made, has been made in the best financial interests of the beneficiaries.”
