In your super fund’s trust deed, there are probably two important clauses, which unwittingly you rely on quite often.
One of these clauses is often called the “catch-all” clause. The other is often called the “general compliance” clause.
They are reasonably controversial parts of the superannuation arena. Some argue that decent catch-all and compliance clauses delay the need to update Self Managed Super Fund trust deeds.
A general compliance clause is intended to automatically incorporate super legislation changes into your trust deed. Here’s an example of a general compliance clause:
“Where compliance with a SIS requirement is a pre-requisite for the fund as a self managed superannuation to qualify as a complying fund and that requirement has not been set out in this Deed then the SIS requirement will deemed to have been included in this Deed”.
A catch-all provision is intended to give trustees the power to do anything that isn’t prohibited by law. An example of a catch-all provision is:
“In addition to any powers expressly conferred upon the Trustee by SIS Act or by the provisions of this Deed, the Trustee has the power to do anything which is not prohibited by SIS Act”.
General compliance provisions: a history
The history of general compliance provisions starts with the super laws that existed before July 1994. In those days, given the frequent changes to superannuation law, lawyers attempted to deal with these changes by including a provision to the effect that any future rules were deemed, automatically, to be incorporated into a super fund trust deed. Before 1994, there was even a regulation that said that super fund trust deeds had to have one of these clauses.
Over time the drafting of this general compliance clause became more sophisticated and attempted to deal with not only new super laws and regulations, which had to be included in a trust deed, but also future modifications of existing laws.
At the same time, catch-all provisions became a popular means of conferring power on trustees to deal with any new developments in legislation and practice.
The super laws that have been in place since 1994 no longer require these rules and it’s hard to find any part of these laws that have to be included in the trust deed. (There are some super laws that apply by force of law, but this is a topic for another day.)
General compliance clauses only have a limited role under the current version of the super laws. They’re handy when the super laws contain a particular rule that is subsequently relaxed.
The problem
The biggest problem with most general compliance clauses is that they catch too much. For example, the Queensland Supreme Court 2010 court case, Donovan v Donovan, found that an SMSF trust deed sought to allow for binding death benefit nominations by simply incorporating the “relevant SIS requirements” via a general compliance clause.
The Supreme Court decided the compliance provision incorporated the SIS rules as they relate to binding nominations for non-SMSF funds.
Most SMSF trust deeds, however, continue to contain these clauses and you need to know how and when you rely on these when running your super fund.
In my next article, we’ll take a look at catch-all clauses and see what they’re designed to do and what it means for your super fund.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
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