Will the Standard SMSF Trust Deed (‘Trust Deed’) be required to be amended to accommodate the new early release provisions of the SIS Regulations?
What are the relevant provisions of the Trust Deed?
Clause 20 of the Trust Deed provides the following:
20.1 A Member or any other person permitted to receive a Member's Benefit by the Act, may be entitled to receive one or more of:
(a) a lump sum Benefit;
(b) a Pension Benefit;
(c) a Temporary Incapacity Benefit:
(d) a Permanent Incapacity Benefit; and
(e) such other Benefit including the proceeds of any Policy that may be permitted to be paid to a Member under the Act, including in situations of Severe Financial Hardship or on Compassionate Grounds, as the Trustees might determine;
provided that the payment of any such Benefit would not breach the minimum Benefit provisions of Division 5.3 of Part 5 of the SIS Regulations, compromise or affect the Fund's status as a Complying Superannuation Fund, or be in breach of the Act.
20.2 A Benefit will be payable to a Member, Dependant of a Member, LPR of a Member or to some other person provided it is required to be paid by the Rules or the Act.
20.3 A Member or the LPR of a Member may request that a lump sum Benefit be paid, and the Trustees at their discretion may pay the Benefit provided it is permitted by the Act and will not compromise or affect the Fund's status as a Complying Superannuation Fund.
20.4 A Trustee may pay a lump sum Benefit to a Member that will not exceed the balance of that Member’s Accumulation Account although, in addition, the Trustee at its discretion may pay the whole or part of any Reserves to the Member.
What are the new early release provisions?
The new early release provisions are found in Schedule 13 of the Coronavirus Economic Response Package Omnibus Act 2020 (Cth) (‘the Act’). Schedule 13 to Act amends the SIS Regulations and RSA Regulations to allow individuals affected by the adverse economic effects of Coronavirus to have up to $10,000 released from their superannuation or retirement savings account on compassionate grounds. Each person is permitted to have up to two releases – one in the 2019-2020 financial year, and another in the 2020-21 financial year.
Under the current law Items 107 and 207 in Schedule 1 to the Superannuation Industry (Supervision) Regulations 1994 (‘SIS Regulations’) provide conditions of release on compassionate grounds. The new early release provisions contain equivalent provisions about the preservation and early release of amounts from retirement savings accounts. The Act expands the definition of compassionate ground in subregulation 4.01(2) to mean the following:
compassionate ground, in relation to the release of an RSA holder’s preserved benefits or restricted non-preserved benefits in an RSA, means:
(a) a ground listed in subregulation 4.22A(1); or
(b) the ground referred to in subregulation 4.22B(1).
The Act inserts a new regulation 4.22B which provides the new conditions upon which a person may apply for the release of an amount of the person’s preserved benefits or restricted non-preserved benefits. Those grounds are the following:
(a) the person is unemployed; or
(b) the person is eligible to receive any of the following under the Social Security Act 1991:
(i) jobseeker payment;
(ii) parenting payment;
(iii) special benefit; or
(c) the person is eligible to receive youth allowance under the Social Security Act 1991 (other than on the basis that the person is undertaking full-time study or is a new apprentice); or
(d) the person is eligible to receive farm household allowance under the Farm Household Support Act 2014; or
(e) on or after 1 January 2020 the person was made redundant, or their working hours were reduced by 20% or more (including 4 to zero); or
(f) for a person who is a sole trader—on or after 1 January 2020 the person’s business was suspended or suffered a reduction in turnover of 20% or more.
How is the early release lump sum to be paid?
The Act adds a new subregulation 6.17D to the SIS Regulations. 6.17D(3) and 6.17D(4) of the SIS Regulations states:
(3) The trustee must pay the benefits to the member as soon as practicable after the trustee receives the copy of the determination, without requiring any additional application from the member.
(4) However, subregulation (3) does not apply if it would require the trustee to pay benefits from a defined benefit interest.
Does the Trust Deed require amendment?
As stated above, the Act does not fundamentally alter the existing legal framework that governs how amounts are released from a person’s superannuation or retirement savings accounts on compassionate grounds. Rather, the Act functions by expanding the grounds on which a person may have amounts released.
Assuming that the Trust Deed complies with the existing legislation and allows for amounts of a member’s benefits to be released on compassionate grounds, the Trust Deed does not require amendment to accommodate the new legislation. Clause 20.2 mandates the payment if required by the law.