See Part 1 for a more detailed background to this case.

Background to governing rules amendment

New South Wales Trustee and Guardian (NSWTG) was appointed as executor of the deceased’s estate. NSWTG engaged a chartered accountant and registered liquidator, Mr Heesh, to administer and wind up the SMSF and act as the SMSF trustee’s (Gainer Associates Pty Ltd – referred to as Gainer) sole director.

Mr Heesh was not the deceased’s legal personal representative (i.e. Mr Heesh was not the executor of the deceased’s estate) and his appointment as sole director of the SMSF corporate trustee was therefore in breach of section 17A of the Superannuation Industry (Supervision) Act 1993 (SIS Act).

Mr Heesh initially picked up on the risk to his SMSF corporate trustee directorship role not being in compliance with section 17A of the SIS Act, because he was not the legal personal representative of the deceased and it was proposed that he be remunerated for his director role. He therefore pre-emptively wrote, jointly with NSWTG, to the Australian Taxation Office (ATO) about the issue. The ATO issued him with an indemnity letter which confirmed that the ATO would not issue a notice that the SMSF was non-compliant, as long as the SMSF was wound up by 29 November 2024 or an extension was sought.

The following Rule 16.7 of SMSF governing rules arguably prevented Mr Heesh from resolving, as sole director, that Gainer distribute 1/3rd of the death benefits in the SMSF to a partner of the sole surviving SMSF member and 2/3rd to her estate:

Rule 16.7
Subject to the Superannuation Laws and despite Rule 16.4, at any Trustee Meeting dealing with a deceased Member's Death Benefits or a Member's Incapacity Superannuation Benefits only the Member's Legal Personal Representatives or Member whilst alive and legally capable and competent may vote on any resolution dealing with the deceased or incapacitated Member's Superannuation Interest or Superannuation Benefits.

Gainer therefore sought advice from the Court that it would be justified to delete Rule 16.7 from the SMSF governing rules so that it could proceed with the distribution and then to wind up the SMSF within the timeframe allowed by the ATO.

The following Rule 14.2 prevented the Trustee from receiving remuneration from the SMSF assets:

Rule 14.2
The Trustee must not to be paid or otherwise receive any remuneration for acting or carrying out its responsibilities as Trustee of the Fund unless otherwise permitted under the Superannuation Laws and/or any determination by the Regulator.

Rule 14.2 is based on section 17A(2)(c) of the SIS Act which states:

(c) no trustee of the fund receives any remuneration from the fund or from any person for any duties or services performed by the trustee in relation to the fund;

We will discuss the topic of remuneration of Mr Heesh further in the next Part 5 of this series of articles.

Gainer was justified to delete Rule 16.7 but not Rule 14.2

The Court advised that Rule 16.7 could be deleted to permit Gainer to make a decision to distribute the death benefit without further delay.

In relation to the deletion of Rule 14.2, the Court referred to NSWTG’s submissions that this proposal went beyond what was notified to the ATO for Mr Heesh to obtain the indemnity letter. The ATO was not notified of any proposal to amend the SMSF governing rules that would otherwise prohibit the remuneration of the SMSF trustee. Further, the indemnity letter notified the ATO that Mr Heesh had not been paid any remuneration for acting as director of Gainer.

Therefore, the Court declined to advise the SMSF trustee to delete Rule 14.2 which would embark on a course giving rise to an additional non-compliance with section 17A(2)(c) of the SIS Act and the SMSF rules.

Conclusion – seeking advice before varying the trust deed

It will be relatively rare that an SMSF trustee would require advice from the Court to amend the trust deed of the SMSF. But in the context of broader claims, allegations or proceedings, such as here, it may be prudent to do so. Especially where the amendment may allow conduct that could otherwise breach the SIS Act.

Such advice can protect an SMSF trustee against later allegations of breach of trust, breach of fiduciary duties or conflicts of interest.