When do trustees need minutes and resolutions?

When should they document their decisions?

Philip La Greca

If a tree falls in a forest and nobody hears it, did it really fall? or if a trustee makes a decision and does not write it down, did it really happen?

One of the things that is asked quite consistently is when should a trustee document a decision? This usually arises when a trustee wants to do something and is unsure if they need to minute it. As usual with most things SMSF, the answer to this question is that it depends.

This paper will consider three issues:

• How do trustees document a decision?

• What decisions do trustees need to document?

• When do trustees need to document decisions?

When determining how a decision is documented, one first needs to consider what type of trustee structure exists because this will determine what documents will govern the rules of decision-making.

If there is a corporate trustee, then the starting point will be the company's constitution. This document will outline a set of steps necessary to make that decision. This can occur either at a meeting of directors or by passing a resolution.

If the fund has individual trustees, the guiding document will be the fund's trust deed. Again, this document will provide instruction on whether decisions are dealt with at a meeting of trustees only or can be by passing a trustee circular resolution.

As there are some critical differences between these two potential methods, the key issues for each method will be compared.

In the event of meetings between trustees and directors, the proof of these meetings is the minutes of the meeting—so what does a minute of a meeting mean? The minute of a meeting acts as a record of an event that occurred and documents the relevant issues of that event, namely who was at the meeting, when did it take place, what was decided at that meeting and finally, a formal sign-off by the chairman that the information in the document is true and correct.

How is a meeting held?

• Some meetings require an advance notice period, such as annual general meetings, but that does not mean that some meetings cannot be called without notice.

• Determine who attended the meeting versus who was eligible to attend.

• Confirm if there were sufficient people at the meeting to allow a decision to be made as a quorum is required. If there are insufficient people at the meeting to form a quorum, then the meeting cannot make any decisions.

• The final element is what items are raised, discussed and decisions made.

Each of these considerations will be documented within the minutes of the meeting.

Now the alternative is the use of a resolution, sometimes referred to as a circular resolution. The key difference with these is that there is no requirement for a gathering of the relevant parties to occur; instead, a document defining the recommended decision/s, or resolutions is prepared and circulated to all the trustees or trustee directors for approval.

It is important to note that:

• Each party does not need to sign the same document but can sign a separate version of the document, meaning that they do not need to be all together at the same time.

• The effective date of the resolution is the latest date at one of the required parties signed the resolution.

• All the signed resolutions from all the relevant parties are required to be kept.

The most significant difference is that minutes require a meeting to occur, and at least a certain number of people must attend. In contrast, circular resolutions do not require a gathering but generally need all parties to agree and confirm the decision.

When do trustees need to document decisions?

The answer to this really hinges on the quality of other documents and procedures the trustee uses to operate the SMSF.

In terms of the significant activities and the extent to which they need to be documented, trustees would be looking at acceptance of contributions, payment of benefits, and investment decisions. So, what are the considerations for each of these types of actions?

For contributions, there are two areas to consider; one is the receipt rules, particularly concerning the work test and classification of contribution types for instance, concessional versus non-concessional.

From a work test point of view, the main issue—up until recently—was verification that the person/member met the work test before the trustees could accept the contributions; thankfully, after 1 July 2022, this responsibility does not rest with the trustees.

The classification of contributions can generally be traced to information sources that come with the payment. If the contribution is made via SuperStream, then data is provided that will mean the trustees have a source of classification. If the contributions are personal contributions, the trustees can generally rely on the use of an Australian Taxation Office (ATO) Notice of intent to claim a tax deduction to determine whether a personal contribution is a concessional contribution or not.

This means the main place where additional information may either be sought by the trustees or needs to be provided by the contributor will be spouse contributions. This is because there is no standard mechanism for informing the trustee that the contribution is of that type.

Other types of non-concessional contributions such as downsizer, CGT small business concession contributions, and personal injury amounts have specific ATO forms that are required to accompany these contributions. This means there is no need for the trustee to specify any decision about these contributions.

The other consideration for contributions is the use of so-called contribution reserving. Because contribution reserving requires the trustee to decide not to allocate a contribution on the date it is received, and this is generally different from the treatment of all other contributions, there will need to be documentation showing the trustee made this change to their normal procedure. Not only will there need to be the trustee's decision to reserve the contribution on the receipt they will also need to be a documented decision on the allocation of the contribution to the member from the reserve.

For benefit payments, the critical issue is that these are not necessarily frequent events and because the Superannuation Industry (Supervision) Act 1993 (SIS Act) requires certain events to occur prior to a condition of release being met and an amount paid from an SMSF, the trustees need to collect that information from the members asking for a benefit to be paid.

The trustees then need to decide that the evidence they have received is accurate and meets the SIS Act requirements, and therefore, they will pay the benefit. Hence this becomes a decision that should be documented.

For pensions, this is a little bit more complicated because generally it is not about a single payment, and so there needs to be supporting material that allows the trustee to make not just the initial pension payment but any subsequent payments to the member in a pension form.

The final element to consider is investment decisions.

One of the questions is: Do I need to document every single purchase and sale of investment? The answer to that question is driven by other paperwork the trustee has completed, particularly the SMSF's investment strategy.

The more quantifiable the investment strategy content is, the easier it is to rely on that document for future investment decisions. Nevertheless, some investment decisions are still probably worth documenting and these would include:

• Acquisition of direct property, particularly as there may need to be other documents signed on behalf of the trustees such as rental agreements, agent appointments and service providers selected to handle repairs and maintenance.

• Implementation of any limited recourse borrowing arrangement as there would be investment strategy considerations as well as additional documents to be executed such as custodian trust deeds and loan agreements.

• Any collectable which then may need to have documentation relating to insurance, storage and possible leasing.

• Loans by the SMSF to non-related parties would require a written loan agreement specifying terms and conditions applicable to the loan.

• Any 'in specie’ contribution or acquisition from a

The quote Minutes require a meeting to occur, and at least a certain number of people must attend. In contrast, circular resolutions do not require a gathering but generally need all parties to agree and confirm the decision.

Philip La Greca, SuperConcepts

Philip is an accomplished SMSF technical expert and soughtafter media commentator on SMSF technical issues. He has over 30 years' experience working in specialist administration, technical and compliance roles with a variety of organisations, including AM Corporation and William Mercer.