Regulations don’t apply for SMSFs

A WA court has ruled the regulation prescribing standards for valid binding death benefit nominations does not apply to self-managed superannuation funds.

The WA Appeal Court President Michael Buss and Justices Graeme Murphy and Robert Mitchell said the SA Full Court decision in Cantor Management should be taken as settling the question of whether reg 6.17A of the Superannuation Industry (Supervision) (SIS) Regulations applied to self-managed superannuation funds (SMSFs) unless it was overruled by the High Court.

They dismissed Claire Elizabeth Hill’s appeal against WA Supreme Court Master Sanderson’s decision in Hill v Zuda Pty Ltd as trustee for the Holly Superannuation Fund.

Ms Hill, 38, is the only child of Alec Kumar Sodhy, who died on 22 November 2016. For 33 years before his death, Jennifer Patricia Murray was his de facto partner and was named as the executor and beneficiary of his estate.

Probate was granted to Ms Murray on 3 February 2017. When Mr Sodhy died, she became the sole director of Zuda Pty Ltd, trustee for the Holly Superannuation Fund, a SMSF created by a deed dated 14 June 2000, which was amended on 13 December 2011. The fund had only two members, Mr Sodhy and Ms Murray.

The amending deed included a binding death benefit nomination that directed Zuda to pay any benefit to which Mr Sodhy was entitled to Ms Murray if he died before her.

Ms Hill argued that the nomination was not in accordance with the SIS Act or its regulations. Regulations 6.17A(6) and (7) prescribe certain requirements that must be met for a binding death benefit nomination to be effective.

She contended the amending deed was not signed in the presence of two witnesses who also signed a declaration that the deed was signed by the deceased in their presence; and the amending deed was signed more than three years before Mr Sodhy’s death, so had ceased to have effect under the SIS regulations.

However, WA Supreme Court Master Craig Sanderson ruled that the regulations did not apply to SMSFs and the Appeal Court agreed.

The Appeal Court said Zuda’s interpretation of the legislation was favoured by the SA Full Court in Cantor Management Services Pty Ltd v Booth. The WA Appeal Court judges said: “The Act and regulations under consideration here are Commonwealth laws. It is a well-established principle that, when interpreting Commonwealth legislation, a court at first instance should not diverge from intermediate appellate authority unless there is extremely good reason for doing so.”

They said that approach was “designed to avoid undesirable disconformity between the views of different intermediate appellate courts as to the proper construction of national legislation and the common law of Australia”.

They found the construction adopted in Cantor Management, that reg 6.17A does not apply to SMSFs, was “not plainly wrong”.

“If this court were to adopt a contrary position [to Cantor Management] merely because it prefers one of two reasonably available constructional choices, it would result in confusion for other courts. It would also produce uncertainty for those involved in the establishment, management and operation of SMSFs and their advisers.

“Given the popularity of SMSFs as investment vehicles, the confusion and uncertainty would likely affect the positions adopted by a broad range of people. The decision in Cantor Management should be taken as settling the question of whether reg 6.17A of the SIS regulations applies to SMSFs until such time as it is overruled by the High Court.”

Hill v Zuda Pty Ltd [2021] WASCA 59, 23/4/21

Hill v Zuda Pty Ltd as trustee for the Holly Superannuation Fund [2020] WASC 89, 25/3/20

Cantor Management Services Pty Ltd v Booth [2017] SASCFC 122, 22/9/17