Compliance to assess incapacity

ATO trustees incapacity

Compliance procedures are being used by the ATO to discover potential incapacity issues suffered by SMSF trustees as they get older.

The ATO has begun using its compliance procedures as a means of uncovering any potential mental incapacity issues trustees might be experiencing as they get older.

ATO SMSF segment deputy commissioner Steven Keating said: “As part of our lodgement program we tend to cluster our non-lodgers into groups [so we can] target our messages, and one of the particular groups that we are looking at are those trustees who are ageing, have moved into pension phase and all of a sudden stop lodging.

“We’re trying to reach out to them to say: ‘Is there an issue potentially with your capability or do you understand your responsibilities in regard to winding up a fund if that is [what is required]?,” Keating said at the LightYear Docs 2021 Virtual Strategy Summit held last week.

The initiative is in line with the regulator’s increased emphasis on having individuals consider their exit strategy from an SMSF at the time of the fund’s establishment.

To this end, Keating revealed the ATO addresses specific safeguards that are relevant in situations where mental incapacity of trustees may be present.

“In that regard the roles [of] a legal personal representative or appointing an enduring power of attorney come into play. They are certainly important considerations that need to happen because when things go wrong, and [trustees] haven’t [put these arrangements in place], that’s when it can become very costly and very time consuming to resolve,” he noted.

“Some of the things we’d like to call out are to check if the trust deed enables an enduring power of attorney to be appointed and if that isn’t the case, to have the documentation updated so it can happen.”

The appointment of one or more substitute powers of attorney is another course of action the ATO is recommending trustees take.

“[This] is particularly if the first choice is usually their spouse. They may be in the same sort of age group where potentially they may also be subject to several medical conditions,” Keating said.

“So thinking about appointing another attorney, potentially one of your trusted children, is a sensible option as well.”

The winding up of an SMSF is one of five modules the ATO has included in the trustee course it is close to completing.

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