Head of Education & Content
In a welcome move, overnight the ATO announced they intend to amend the law so directors who resign or are removed before 1 December 2022 will be exempted from applying for a director ID. So who will benefit from the change and how will it work?
Like all companies, any individual who is a director of a company that is the trustee of an SMSF needs to apply for a director ID. Different timeframes apply depending on when the individual was first appointed as a director of any company.
The law currently states that an individual who was a director of any company on 31 October 2021 must apply for a director ID and must do so by 30 November 2022. Up until now, these same rules applied even in situations where the individual has since resigned or been removed from all directorship roles.
In a welcome move, the ATO has now released a draft of legislation intended to exclude certain individuals from the requirement to apply for a director ID. To be excluded, the individual must:
- have been a director or alternate director of any company on 31 October 2021, and
- not be a director or alternate director of any company after 30 November 2022.
Let’s look at some examples of who will benefit from the changes.
SMSFs winding up
Fred and Mary had an SMSF for many years until it was wound up on 30 June 2022 and the final SMSF Annual Return lodged in October 2022. The company which was the trustee of the SMSF was deregistered on 5 November 2022 and Fred and Mary are no longer directors of any company. Under the proposed changes, Fred and Mary will no longer be required to apply for a director ID.
Albert and Betty have had an SMSF for many years but are in the process of winding it up. The fund ceased to have any assets by 30 June 2022. The final financial statements are in the process of being audited and the final SMSF Annual Return is due to be lodged shortly. On lodgement of the final SMSF Annual Return and closure of the fund’s bank account, Albert and Betty can resign as directors and the fund’s trustee company can be deregistered. If Albert and Betty resign as directors on or before 30 November 2022 and are not directors of any other companies, they won’t be required to apply for a director ID. Note, the company will need to have at least one director up until the time it is deregistered.
The ABC Super Fund has a corporate trustee. Harry was a director of the corporate trustee for many years until his death in May this year. As Harry ceased to be a director before 30 November 2022, he is exempted from the director ID requirements.
The DEF Super Fund has a corporate trustee. Allan was a director of the corporate trustee for many years until he lost mental capacity and was removed as a director in June 2022. Allan is not a director of any other company. Because he was removed as a director before 30 November 2022, he is exempted from the director ID requirements.
The LMN Super Fund also has a corporate trustee. Pearl and her partner April have been directors of this corporate trustee for many years. Pearl is struggling with mental capacity and can no longer continue to act in her role as director. If Pearl is removed as a director on or before 30 November 2022 and is not a director of any other company, she’ll be exempted from the director ID requirements.
What else should I know?
When dealing with SMSFs with corporate trustees, the director ID rules are not the only rules which need to be considered. Advisers and trustees also need to take care with:
- The SMSF definition, which generally requires all members of an SMSF to be a director of the corporate trustee unless someone else is eligible to act in their place. For example, in April and Pearl’s situation, Pearl won’t be able to remain as a member of the fund (without also being a director of the corporate trustee) unless Pearl’s attorney under an enduring power of attorney is a director in their place. For example, if April was Pearl’s attorney, the LMN Super Fund will continue to meet the SMSF definition despite April being the sole director. A review of the fund’s governing rules and constitution is also appropriate to ensure the above arrangement is permitted.
- The requirements of the Corporations Act, which mean a person’s resignation as a director only takes effect from the day they stop being a director if ASIC is notified within 28 days. Otherwise, their resignation will not be effective until ASIC is notified.
The changes discussed above are a draft only at this stage, with consultation to close on 9 December 2022 (ie after the 30 November 2022 cut-off). However, the legislation is to be backdated to 1 December 2022 and at this stage, we are not expecting any disagreement with the approach proposed.
Finally, remember that if any of the individuals exempted via the changes above wish to become a director of a company once again (other than poor Harry of course), they will need to apply for a director ID before their appointment.
Stay up to date with all things super by registered for our newsletters. Sign up here.