05 July 2022
#Private Client Practice, #Superannuation, Funds Management & Financial Services
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Self-managed superannuation funds (SMSFs) have long been used by those who take a keen interest in their retirement savings. One of the advantages of an SMSF was the flexibility for members to have binding death benefit nominations which did not expire or lapse. So when the case of Hill v Zuda Pty Ltd [2020] WASC 89 made its way to the High Court, SMSF advisers eagerly awaited the outcome.
The question to be answered by the High Court was whether the Court of Appeal was correct to conclude that regulation 6.17A of the Superannuation Industry (Supervision) Regulations 1994 (Cth) has no application to an SMSF.
Regulation 6.17A is very prescriptive and requires a binding death benefit nomination (BDBN) to be signed and witnessed in a particular way and determines that a BDBN lapses or expires three years from the date it was signed.
The question of whether regulation 6.17A applies to SMSF has been looked at by the Supreme Court of Queensland and the Court of Appeal in South Australia. On both occasions, it was determined that regulation 6.17A did not apply to SMSFs. However, the regulation does apply to an SMSF where an SMSF trust deed refers to or imports the application of the regulation. Now this question has been examined by the Supreme Court of Western Australia and the High Court of Australia.
The High Court has dismissed the appeal in Hill v Zuda Pty Ltd [2022] HCA 21.
Zuda Pty Ltd (Zuda) is the trustee of the Holly Superannuation Fund (Fund), an SMSF established in 2000. Mr Sodhy and Ms Murray were defacto spouses, the directors of Zuda and members of the Fund. Mr Sodhy had one child, Ms Hill.
In 2011, the Fund’s trust deed was amended to include a clause headed ‘binding death benefit nomination’ which provided that if a member of the Fund died, Zuda was required to pay the whole of the deceased member’s account balance to the surviving member. Mr Sodhy died in November 2016.
Ms Hill commenced proceedings in the Supreme Court of Western Australia seeking to stop Zuda from paying her father’s death benefits to Ms Murray on the basis that the BDBN didn’t comply with regulation 6.17A and therefore was of no effect.
The Master in the Supreme Court of Western Australia held that regulation 6.17A had no application to an SMSF and dismissed Ms Hill’s proceedings. Ms Hill appealed this decision and the Court of Appeal concluded no error was made and dismissed her appeal.
Despite Ms Hill’s very clear determination to ensure that her father’s defacto partner didn’t receive his superannuation death benefits, we now have confirmation from the High Court that regulation 6.17A does not apply to SMSFs, and Ms Hill has the legal costs and none of her father’s death benefits.
Regulation 6.17A does not apply to SMSFs, meaning members of SMSF can make BDBNs which do not have to be witnessed and do not expire or lapse subject to the terms of the trust deed of the SMSF. Therefore, it is important for SMSF members to read and understand the terms of their SMSF trust deeds. SMSF members can make BDBNs in accordance with the terms of the SMSF trust deed that are not required to comply with regulation 6.17A, unless the trust deed requires that.
Authors: Kylie Wilson
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The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this newsletter is accurate at the date it is received or that it will continue to be accurate in the future.
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