Membership guided not just by SIS Act but by deed: expert

“You are a member because you have a balance but you can be a member without a balance. There is also a need to be very cognisant of what the deed says and how it aligns with the SIS Act and other regulations,” he said in a recent webinar.

Dunn said although a member may automatically cease to be a member when they no longer have a balance, it would also require a decision by the trustee of the fund as to whether they can leave the fund.

“It’s important to know the nuances of what the deed prescribes, but as a flow-on from this, just because a member – and potentially a trustee – wants to be removed from a fund, they are subject to the section 17a rules,” he said.

“Communication is the key because a lot of people would think that just writing a letter of resignation is enough, and then it's done and dusted. But ultimately, that's not the case.”

The process of a member, and/or director who wishes to be removed from a fund can be more complicated if they are also a shareholder, he added.

“One of the things that could be written in deeds to help this process is a clause that states when someone ceases as a member they forfeit their share [in the fund]. These things are important, especially when you get to blended families,” Dunn said.

“Looking at some of the greatest succession issues as people get older, it’s important to understand what the deed says and linking the deed in the constitution is crucially important as well.”

Dunn said in circumstances where there may be non-cooperative trustees who may be challenging a member who wants to roll out an SMSF, it may be necessary to look beyond section 17a of the SIS Act.

“Control inside a fund and company is, in essence, going to be dictated by whatever decision-making powers sit inside those relevant documents,” he said.

“For example, if you have three members inside of a fund, and they're all directors, two could potentially gang up against one on the basis that there is equal voting and equal decision-making based on shareholding.”

Conversely, there could be a situation where one member might still be able to outvote the other two because they have more in the account balance.

The challenges of removing uncooperative members mean in some cases, court intervention might be necessary, highlighting the complexities of SMSF governance, especially in situations involving disputes or the need for member removal.

“This again goes back to the importance of lining up the constitution with the SMSF deed because too often I see updates get made to the deed, then the way in which the rules are written differ starkly from the decision-making powers inside the constitution,” he said.