SMSFs reminded on other requirements with director resignations
While the ATO’s recent relief for resigned directors will benefit many who have recently wound up their fund, there are other important requirements to be aware of, says a technical expert.
In a recent online article, Heffron head of technical and education services Lyn Formica noted that the ATO last week announced they would amend the law so that directors who resign or are removed before 1 December 2022 will be exempt from applying for a director ID.
To be excluded, the individual must have been a director or alternate director of any company on 31 October 2021 and not be a director or alternate director of any company after 30 November 2022, Ms Formica explained.
Ms Formica gave an example to explain how the announced change will benefit clients who have recently wound up their SMSF.
“Fred and Mary had an SMSF for many years until it was wound up on 30 June 2022 and the final SMSF Annual Return lodged in October 2022. The company which was the trustee of the SMSF was deregistered on 5 November 2022 and Fred and Mary are no longer directors of any company.”
“Under the proposed changes, Fred and Mary will no longer be required to apply for a director ID.”
Mr Formica said the requirements will also be beneficial where there are incapacitated directors that have recently been removed as directors.
She gave the example of the DEF Super Fund that has a corporate trustee.
“Allan was a director of the corporate trustee for many years until he lost mental capacity and was removed as a director in June 2022. Allan is not a director of any other company.”
“Because he was removed as a director before 30 November 2022, he is exempted from the director ID requirements.”
She gave another example involving the LMN Super Fund which also has a corporate trustee.
“Pearl and her partner April have been directors of this corporate trustee for many years. Pearl is struggling with mental capacity and can no longer continue to act in her role as director,” said Ms Formica.
“If Pearl is removed as a director on or before 30 November 2022 and is not a director of any other company, she’ll be exempted from the director ID requirements.”
However, Ms Formica reminded SMSF professionals and their clients that the director ID rules are not the only rules that need to be considered.
Advisers and trustees also need to take care with the SMSF definition, which generally requires all members of an SMSF to be a director of the corporate trustee unless someone else is eligible to act in their place, she cautioned.
“For example, in April and Pearl’s situation, Pearl won’t be able to remain as a member of the fund (without also being a director of the corporate trustee) unless Pearl’s attorney under an enduring power of attorney is a director in their place,” she explained.
“For example, if April was Pearl’s attorney, the LMN Super Fund will continue to meet the SMSF definition despite April being the sole director. A review of the fund’s governing rules and constitution is also appropriate to ensure the above arrangement is permitted.”
Trustees also need to consider the requirements of the Corporations Act, she said, which mean that a person’s resignation as a director only takes effect from the day that they stop being a director if ASIC is notified within 28 days.
“Otherwise, their resignation will not be effective until ASIC is notified,” she warned.