New legislation passed this month has introduced a new identification process with which directors of an SMSF corporate trustee must now comply.
The Treasury Laws Amendment (Registries Modernisation and Other Measures) Bill 2019, passed on 12 June, stipulates all directors of a registered body, including companies, a registered foreign company and a registered Australian body under the Corporations Act, will be required to obtain a director identification number (DIN).
The new system will not become active until 12 June 2022, unless an earlier date is set, to allow the appropriate systems to be put in place and give current directors of these bodies sufficient time to apply for their DINs.
From this date an SMSF being established using a corporate trustee will have to ensure any director appointed to that corporate trustee has a DIN. If they have not been issued a DIN prior to setting up the SMSF, they will have to apply for the identification item within 28 days of their appointment as a director.
This procedure will be in place for the first 12 months of the new system being in place. When this period expires, an individual will need a DIN before they are appointed as a director.
Further, a person who is appointed as a director or alternative director of a company that existed at 12 June 2022 will be subject to the same obligation.
An existing commonwealth body will be appointed as the registrar for the new framework with the responsibility of administration and the processing of DIN applications.
The system has been designed so that a person will only be issued with one DIN that will remain with them even when they ceased to be a company director. In addition, an existing DIN will never be assigned to another individual.
The initiative has been introduced to address situations where company controllers avoid paying liabilities by closing an indebted entity and transferring the assets of that entity to a new company, otherwise known as phoenixing. The explanatory memorandum to the bill estimates this type of activity contributes between $2.9 billion and $5.1 billion of costs annually to the Australian economy.
SMSF Association deputy chief executive and director of policy and education Peter Burgess pointed out the new identification rules should not discourage SMSF trustees from employing a corporate trustee and acknowledged the benefits that would result from them.
“While the need to obtain a DIN introduces an additional step for SMSFs established with a corporate trustee, it should be remembered that a corporate trustee has many advantages over an individual trustee structure and should remain the preferred option for clients,” Burgess said.
“The introduction of the new DIN regime will enhance the integrity of the SMSF sector by ensuring the identity of a person, who is or will be the director of a company that acts as the corporate trustee of an SMSF, has been verified by a commonwealth body.
“It should also help to ensure that those who act in the capacity of a director of a corporate trustee of an SMSF are not disqualified from doing so.”''