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Budget planning for clients

Great planning opportunities exist leading up to the implementation of the Budget proposals. However, from 1 July 2007, many of these opportunities will cease.

Accordingly, it is vital that advisers meet with clients to discuss superannuation and estate planning strategies that may be implemented before 1 July 2007. A pro-active adviser can add great value in this environment.

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This article contains a pro-forma letter that advisers can send to their clients summarising some key planning opportunities.

Update: ATO and SMSFs

Trustees are custodians of the fund’s assets and must hold and protect them from outside risks.

The ATO have repeatedly declared that assets should be in the fund’s name and all trustees (be they two or more individuals or a company) should be registered as owners, typically where mum and dad act as individual trustees (eg, James and Louise Taylor) the preferred way to own investments is: ‘James and Louise Taylor as trustees for the Taylor Super Fund’. This shows to all concerned that the assets are held on trust for James and Louise’s fund.

Thus, if James or Louise were sued or declared bankrupt, then the assets should not be at risk to their personal liabilities; at least up to the level of protection afforded by the Bankruptcy Act 1966 (Cth) which is currently linked to each person’s pension RBL.

We understand that with the abolition of RBLs from 1 July 2007, a new system of establishing the protection limit will be implemented which may track the pension RBL (as indexed) of the person moving forward.

The ATO have stated that they have come across cases where an SMSF’s assets have been seized in debt proceedings (eg, by a trustee in bankruptcy or a liquidator or receiver acting on behalf of a corporate trustee). The ATO believe that having proper records should overcome this risk.

However, it is not always possible to have a fund or trust’s name recorded on title or in the assets’ legal ownership. Typically, real estate and share registers only recognise legal ownership, ie, they will only register James and Louise Taylor as joint owners, but will not recognise a trust.

[Note: trustees should be registered as joint proprietors and not as tenants-in-common. This is because on the death of one trustee, the survivor takes. In contrast, tenants-in-common is distinct title, which is dealt with under the deceased person’s Will.]

In order to overcome the limitation in recognising fund ownership, the ATO have declared that a caveat, instrument or declaration of trust must be executed to clearly record the fund’s ownership.

The ATO have also stated that if an asset is only in one individual trustee’s name (eg, James), then supporting documentation should exist to demonstrate that the asset is in the name of the fund (eg, in trustee meeting minutes). The ATO issued a media release (NAT 2005/37) in early 2005 giving SMSFs to the end of June 2005 to comply with this directive.

It would appear that many SMSFs have not heeded the message as the ATO have repeated this directive for SMSFs to properly recognise asset ownership.

The ATO consider not having proper ownership as seriously compromising the rules which seek to protect superannuation savings for retirement. The ATO’s resolve in getting compliance is very clearly gained from the warning on the penalties that can be imposed.

What is the penalty?


Trustees who do not comply with this requirement risk disqualification, which would also result in them being ineligible to be a trustee of any superannuation fund. The ATO would also refer the trustees to the Australian Government Solicitor for consideration for prosecution.


An auditor who fails to report a breach as required (to either the trustee or the ATO) is subject to a penalty of $2,750, regardless of whether they are at fault for failing to do so. If the auditor is found to be at fault in failing to report a breach, the penalty increases to $5,500. The auditor could also be disqualified if the breach they failed to identify is substantial.

Thus, there is need for extreme care in ensuring documentation is appropriate and in compliance with the superannuation rules. In this regard, we raise the following comments:

We generally prefer a sole purpose company to act as trustee and this largely overcomes the ATO’s concerns. A trustee resolution on acquiring assets complies with the ATO’s views where the fund’s name is not recorded in the record of legal ownership.

We have concerns with the suggestion that a caveat should be used to prevent someone dealing with an SMSF’s asset. In particular, a caveat may constitute an ‘encumbrance’ and could breach SIS reg 13.14.

It appears that an ‘instrument’ includes such things as trustee resolutions, purchase contracts and other written evidence. Thus, a caveat or declaration of trust may not be required if other appropriate material exists to recognise fund ownership.

We are generally reluctant to prepare a declaration of trust without having a thorough understanding of the applicable stamp duty laws of the State or Territory involved. This is because some sizeable unwanted stamp duty liabilities can arise in declaring trusts in respect of dutiable property. Accordingly, we recommend that expert advice always be obtained before doing so.

Finally, where only one of several trustees or, indeed, some custodian or nominee is registered as owner of a trust asset, the SMSF’s deed should be reviewed to ensure it expressly authorises the custodian or nominee arrangement. Appropriate documentation should also exist regarding the terms and conditions of such an arrangement to ensure it is at arm’s-length and complies with applicable superannuation laws.


We believe the ATO’s stance on penalties is too strict given the difficulty of getting the fund’s name on title. We otherwise see the ATO as seeking to remind trustees and advisers of an age old principle of trust law, that trustees should prudentially own and manage their assets.

For further Information please contact:

DBA LAWYERS PTY LTD (ACN 120 513 037) Level 1, 290 Coventry Street, South Melbourne Vic 3205
Ph 03 9092 9400 Fax 03 9092 9440 [email protected]

DBA News contains general information only and is no substitute for expert advice. Further, DBA is not licensed under the Corporations Act 2001 (Cth) to give financial product advice. We therefore disclaim all liability howsoever arising from reliance on any information herein unless you are a client of DBA that has specifically requested our advice.

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