ATO on Buy-Sell Insurance via SMSFs
- SMSF’s purchase of a life insurance policy in accordance with the terms of a buy-sell agreement possibly breaches the sole purpose test
- SMSF could be viewed as providing financial assistance to a relative of the member.
Buy-Sell Agreement (BSA) or ‘Business Will’ is a legally binding agreement between business owners. A BSA governs what is to happen upon a trigger event such as the death of a business owner to ensure the smooth transition of business ownership. BSA’s are typically funded via life insurance policies on each of the business owners and in some cases these polices are owned via their personal Self-Managed Superannuation Funds (SMSFs).
The ATO recently issued ATO ID 2015/10 casting significant doubt on this practice. Broadly the ATO’s concerns are summarised as follows:
- An SMSF’s purchase of a life insurance policy in accordance with the terms of a buy-sell agreement possibly breaches the sole purpose test contained in section 62 of the Superannuation Industry Supervision Act 1993 (SISA).
- In the instance of the BSA is between family members, the SMSF could be viewed as providing financial assistance to a relative of the member which is prohibited under. S.65 of SISA
Other issues to consider
A separate issue, is the deductibility of superannuation contributions to fund insurance premiums. In order for an employer contribution to be tax deductive under s.290-60 of Income Tax Assessment Act 1997, the contribution needs to be made to provide a “superannuation benefit” for the employee. In light of the ATO’s position, a question now arises as to whether the contributions made to pay for the premiums in this scenario will satisfy this test.
We recommend effected trustees should seek advice from their SMSF advisers or WARR HUNT for assistance.
Changes to Victorian Powers of Attorney
- Changes are being introduced to Victorian Powers of Attorney from 1 September 2015
- Powers of Attorney made up until 1 September 2015 will remain valid
- Introduction of the ‘Supportive Attorney’ designed to help professionals and their clients
- The changes may reason to review your Estate Plan
Enduring Powers of Attorney
The Victorian system currently has two kinds of enduring powers of attorney:
- Enduring Powers of Attorney which relates to powers for financial matters
- Enduring Powers of Guardianship which relates to powers for personal matters
From 1 September 2015 new legislation will consolidate these into a single Enduring Power of Attorney encompassing financial and personal matters. The new legislation also sets out the powers and obligations of this combined power and provides for a criminal offence of up to five years imprisonment for abuse of this power. The legislation gives general oversight of the powers to VCAT and establishes more stringent conditions for witnesses.
The current General Powers of Attorney will become General Non-enduring Powers of Attorney, to reflect the use of the appointment for a finite period. This type of attorney does not endure if the principal loses capacity to make decisions.
The legislation introduces a new Power of Attorney, the Supportive Attorney. This role is designed to help professionals assist the principal (the person nominating the Attorneys) in making a decision. The power gives the supportive attorney capacity to obtain information and communicate the principal’s decision. Where the decision does not involve a significant financial transaction (valued under $10,000), the supportive attorney can take reasonable steps to implement the principals decision.
We recommend seeking advice from an accredited estate planning specialist or contact WARR HUNT for assistance with referral.