It is only fitting that the authority charged with overseeing SMSFs also has the power to bar persons from serving as trustees or directors of corporate trustees. This can happen if there are doubts about the individuals’ eligibility for the post of trustee or if they fail to comply with the statutory laws; in other words, disqualified SMSF trustees.
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What happens if I am disqualified?
If a trustee becomes disqualified, they are required to resign immediately per section 126K of the Superannuation Industry (Supervision) Act (SIS Act). As they have no legal means of appointing a substitute personal representative. The trustee, whether an individual or a corporation, will determine the next steps for the fund during this six-month reorganisation phase.
How do I know I am disqualified?
You may be wondering what the criteria for disqualification are. Although the answer will vary from case to case, there are three scenarios in which an SMSF might be disqualified under the SIS Act’s section 120:
- Conviction for a crime involving dishonesty, such as tax fraud or dealing in stolen goods, or involvement in such crimes.
- Having a civil penalty order issued against you, which usually consists of a monetary fine like a parking ticket you forgot to pay.
- Involvement in a personal insolvency agreement under Part X of the Bankruptcy Act 1966 is considered the same as being an undischarged bankrupt under that law.
Basic Conditions of s17A
In addition, you have numerous choices if your fund no longer satisfies the standards under section 17A of the SIS Act. You have six months to decide whether to reorganise your fund, convert to a small APRA fund, or wind it up and transfer the assets to an APRA-regulated fund.
In the most likely scenario, an SMSF has six months to reorganise if it no longer fits the basic standards before it is forced to become an APRA fund. If this happens, the fund will need to choose a replacement trustee, ideally someone who is already a member of the fund and is related to the current trustee. Alternatively, the fund may choose to wind down and transfer its assets to an APRA-regulated fund, as was previously noted.
In conclusion, the Superannuation Industry (Supervision) Act outlines the grounds for disqualification and the options available if a fund no longer meets the basic conditions. Trustees must act within a six-month window to restructure, appoint a new trustee if needed, or consider transitioning to a small APRA fund or transferring funds to an APRA-regulated fund. By staying informed and compliant, trustees can safeguard members’ retirement savings and ensure the smooth operation of their SMSFs.
Need assistance regarding self-managed super funds (SMSFs)? We’re here to help! Our team of knowledgeable experts is ready to provide guidance and support tailored to your specific needs. Whether you’re a trustee seeking clarification on SMSF regulations or require assistance with restructuring your fund, we’ve got you covered!