SMSF trustees considering not complying with proposed best financial interest duty changes since breaches do not carry a penalty have been warned they may be hit with penalties from other parts of superannuation law instead.
Accurium head of education Mark Ellem said the changes, which have been put forward as part of the Your Future, Your Super package, will affect the covenants in section 52B of the Superannuation Industry (Supervision) (SIS) Act, and these will apply to SMSFs, as well as Australian Prudential Regulation Authority-regulated funds.
“What’s relevant for SMSFs is the replacement of the term ‘best interest duty’ with ‘best financial interest duty’ so it will apply to all super funds, including SMSFs,” Ellem said as part of a recent webinar.
Addressing the changes within the package late last year, Heffron technical services manager Leigh Mansell said the changes to the covenants would require superannuation trustees, including those inside an SMSF, to be able to account for expenditure by the fund, including that related to making investments or improving property held within the fund.
Ellem noted that since the new duty obligations will be part of the covenants in section 52B of the SIS Act, with no penalties attached, trustees may feel they can disregard this requirement.
“So what’s the point if I am not going to be penalised? There is a ‘but’ and that is you may not be penalised, but SMSF trustees who are found not to be acting in the best financial interest of the beneficiaries of the fund could be penalised under other provisions of the SIS Act,” he said.
“These could include section 62 relating to the sole purpose test or section 65 relating to providing financial assistance to relatives or members.
“Also, SMSF trustees that are in breach of covenants, including this best financial interest duty, could be considered not to be fit and proper to manage their SMSF and they could be disqualified under section 126A of SIS Act.”
He said SMSF trustees should not be concerned about inadvertently breaching the changed covenants in the future if they maintain current, correct obligations for trustees.
“From an SMSF trustee point of view, if you continue to comply with all the relevant provisions, such as not lending to members or relatives, or providing financial assistance, meeting the in-house assets and sole purpose tests, you are most likely going to comply with the best financial interest duty,” he noted.
The proposed best financial interest duty changes were open to industry consultation until 24 December last year and the final details of the Your Future, Your Super package have yet to be released.
