Posted on March 5, 2015 by Christabelle Harris
Death is not something we think about, but inevitably it will happen to every one of us! Your Superannuation is likely to be one of your most valuable assets and you may not realise that your superannuation does not ordinarily form part of your estate and is therefore not covered by your Will.
We understand that estate planning can be daunting and so we work closely with trusted Law Firms to ensure your estate planning is tax effective as well as ensuring the outcome you want.
You have the option to provide the Trustee of your fund with a death benefit nomination. This is a notice requesting the payment of your superannuation entitlement be paid either to your estate or one of your specified dependants.
There are two types of nominations:
- A binding nomination which is binding on the trustee – that is the trustee must comply with it;
- A non-binding nomination – the trustee can exercise their discretion not to follow your nomination.
Please be aware that if there is no remaining trustee, your legal personal representative (the executor or administrator of the estate) acts as a trustee.
A valid binding nomination gives you certainty that your superannuation benefit will be paid to your nominated beneficiaries. If you have structured your Will to achieve certain outcomes, by having a binding nomination in place to your estate, your executor will pay out your superannuation benefits according to the terms of your Will. Alternatively a binding death benefit nomination can be used to direct your superannuation benefits to a beneficiary directly.
Unfortunately superannuation members die with no valid ‘nomination’ in place. If no binding nomination is made, the trustee or Legal personal representative (if there is no remaining Trustee), will use their discretion to distribute your superannuation entitlement. If the binding nomination form is invalid because you nominated an invalid beneficiary (e.g. your loving pet), then your death benefit will be paid using the remaining trustees’ discretionary powers.
For a nomination to be binding, you must nominate that your superannuation death benefit is to be paid to either your dependants or to your estate. Eligible persons are as follows:
- Legal Spouse
- De facto spouse including same sex partner
- Any child including any adopted child, step-child or ex-nuptial child
- Any person who was a dependant of the deceased just before the death
- Any person you have an interdependency relationship with
- Legal personal representative of your estate
Please be aware that an otherwise binding nomination is generally no longer binding when the nominated person is the deceased members spouse and there has been a divorce or permanent separation.
If you have a binding nomination in place, you should make sure you update your nomination to reflect any change in circumstances like marriage or the birth of a child.
You can provide a non-binding nomination which enables you to advise the trustees of your SMSF on how you wish your superannuation savings to be distributed upon your death. However because it is non-binding, the final decision is still at the trustee’s discretion.
Your SMSF’s trust deed will detail what information a binding nomination requires in order to be valid. Some deeds require two witnesses (aged 18 years or over who are not nominated as a beneficiary) to sign the nomination document and it can also stipulate that the binding nomination has to be renewed every three years or it will lapse. SMSFs are able to offer non-lapsing or lapsing binding nominations, depending on the terms of the SMSF’s trust deed.
If you are unsure if you currently have a binding nomination in place or wish to discuss any of the information above, please contact Helen Cooper, the Senior Manager of our Self Managed Superannuation team.
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Posted on November 6, 2014 by Chris Grieve
The director penalty regime has been in place since 1993 and most directors have at least a “working knowledge” of how the provisions operate and when they could become personally liable for the pay as you go (PAYG) withholding tax liabilities of their company. However, from 30 June 2012, the director penalty regime was expanded to include the superannuation guarantee obligations of the company, as well as restricting the application of some of the statutory defences.
The purpose of these reforms was to protect employee entitlements.
Who can be liable under the regime?
The following persons can be liable under the director penalty regime:
- Directors at the time the ATO sends out the notices (even if they weren’t directors at the time the obligation arose);
- Directors at the time the obligation arose (even if they are no longer directors);
- Alternative directors; and
- “shadow directors”.
What can Directors be held liable for?
In addition to PAYG withholding amounts, the director penalty regime, from 30 June 2012, applies to unpaid superannuation guarantee payments. Directors become liable for such superannuation guarantee payments on the day the company must lodge its superannuation guarantee statement. This is on the 28th day of the month after the end of a quarter.
So, for example, for the quarter ending 30 June the lodgement day is 28 July. Therefore, directors can be liable from that date for the company’s superannuation guarantee charge relating to the June quarter.
The liability includes not only the company’s superannuation obligations (for the 2014/15 year, being 9.5% of the employee’s ordinary times earnings), but also an interest component (10% p.a.) and a penalty component ($20 per employee per quarter).
Defences
A director has broadly three defences:
- commence winding up the company within 21 days of receiving the notice (this has now been modified, as discussed below);
- establish, because of illness or some other valid reason, the director did not take part in the management of the company at the time when the company incurred the withholding obligation; or
- the director took all reasonable steps to ensure the directors complied with their withholding obligations.
A new defence has been added that will ensure that a director is not liable to a director penalty relating to the superannuation guarantee charge, where they can establish that the penalty resulted from the company treating the Superannuation Guarantee (Administration) Act as applying to a matter or identical matters in a particular way that was reasonably arguable. In addition the director must show the company took reasonable care in connection with applying the Superannuation Guarantee (Administration) Act to the matter or matters.
For example, the company could take a view that certain persons are contractors and therefore the company does not need to make superannuation guarantee payments in respect to them. If the ATO, or the Courts, subsequently find that the persons were covered by the Superannuation Guarantee legislation, and that superannuation contributions should be made on their behalf, then, although the company will remain liable for the superannuation guarantee charge, directors will not be liable; provided that the view taken by the company was reasonably arguable and the company took reasonable care in relation to its superannuation guarantee obligations.
The “wind up defence”
The ability of directors to avoid director penalty obligations by winding up the company has been restricted to a period of three months after the debt is incurred. After that three month period the only way a director will not be liable for the company’s withholding or superannuation guarantee obligations is to pay the debt or satisfy one of the other two defences (ie the winding up of the company will not absolve the director of the penalties).
So to continue the example set out above, where a director becomes personally liable for the June quarter superannuation guarantee obligations, on 28 July, the “wind up defence” will lapse three months later (ie on 29 October).
New directors “grace periods”
New directors have two “grace periods”. First, they will not be liable for either PAYG withholding obligations of a company, or the superannuation guarantee obligations of a company, for the first 30 days of their appointment. This gives a new director time to conduct due diligence on the company and resign if necessary. If the director does not resign within that 30 day period then the director will be potentially liable for both past and present PAYG withholding and superannuation guarantee liabilities of the company.
Discretion to reduce PAYG withholding credits for directors and their associates
The Commissioner of Taxation has been granted the discretion to reduce credits for tax withheld from the salary of directors and their associates. So for example, if a company has withheld $15,000 of tax from a director’s fees, the Commissioner has the discretion to reduce those credits, with the effect that the director will have to pay full tax on his or her director fees (even though that tax has previously been taken out of the director’s fees).
What should Directors do?
Directors must ensure that their company has met all of its PAYG withholding and superannuation guarantee obligations on an ongoing basis. Where directors do not have day to day control of the company, they should ensure that management regularly confirms that the company’s PAYG withholding and superannuation guarantee obligations are met.
Where directors become aware that the company’s PAYG withholding and/or superannuation guarantee obligations have not been met, they should ensure that within the three month period after the liabilities arose, that either the liabilities are paid or that the company commenced to be wound up. If they fail to do this then unless one of the limited defences apply, the directors can be liable for those liabilities.
New directors should ensure that they conduct proper due diligence before or soon after their appointment. If that due diligence shows up unpaid PAYG withholding or superannuation guarantee liabilities, or the director cannot satisfy herself/himself that all liabilities have been met, the director should strongly consider resigning within the first 30 days of their appointment to ensure that they are not personally liable.
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