ATO, Compliance

‘Disqualified persons’ needs better explanation

Accountant; SMSF; defrauded

A former accountant who recommended the use of an SMSF with some clients has been jailed after he defrauded investors of $815,000.

SMSF practitioners must ensure they educate all prospective trustees on the definition of a disqualified person as many are unaware of what it means and some could find they are not permitted to act as an individual or corporate trustee.

This issue was highlighted by SMSF expert Monica Rule at the Institute of Public Accountants SMSF Retreat in Noosa earlier this week.

“A disqualified person is someone who’s been convicted of an offence involving dishonesty or someone who has been subject to a civil penalty order under the superannuation law,” Rule said.

“It doesn’t matter how long ago the offence was or which country it was committed in.

“A disqualified person can also be someone who is an insolvent under administration, that is, bankrupt, or someone who has been disqualified by the ATO. And once you are disqualified, you can never set up an SMSF.”

She said under the corporate trustee structure, directors or the responsible officer of that company cannot be a disqualified person.

“If an average person sees ‘disqualified person’ on the [SMSF fund registration] form, sometimes they don’t even realise because it’s not the same as getting a notification for being suspended from driving, so they’re aware they can’t drive. They’d say if the government hasn’t sent anything to them, then they mustn’t be disqualified,” she said.

“Also, for most of us, it can be awkward for us to ask our clients if they’ve stolen anything or committed any crimes.

“I have a case of someone who became a trustee but they had stolen something for $25. It happened 30 years ago.”

She warned that the ATO must be notified if an SMSF trustee or director is a disqualified person.

“If you stay silent, you’re committing an offence,” she said.

However, a provision in the super law allows for the application for a waiver of disqualified status for minor offences.

“The definition of a minor offence is the conviction is not more than two years and the penalty is not more than $25,200,” Rule said.

“So if any of your clients want to set up a fund but they’re disqualified, they can ask for a waiver. But the catch is it must be applied for within 14 days of the conviction.

“So what you do here is ask for an extension of time from the ATO, explain the offence happened 30 years ago and then go through the grounds for waiving the status.

“Also, if you want to become a trustee of an SMSF, you’ve got to take an interest in the law, so make sure you don’t [contradict] that when you ask the ATO.”

Explaining further, she told selfmanagedsuper because it is a voluntary disclosure, it is a challenge for the tax office to identify disqualified people.

“Unless the person puts their hand up and identifies themselves, the ATO wouldn’t necessarily know if someone’s been convicted or not. Sometimes the ATO only finds out if they do an audit,” she said.

“With bankruptcy, the ATO eventually finds out because of the tax returns.”

Rule, who was a senior compliance officer for 28 years at the ATO, added it was likely some current SMSF trustees are disqualified persons.

“I’m sure out of the 600,000 SMSF members there would be a few disqualified people, but they wouldn’t realise because they don’t know what a disqualified person is; they don’t know the law,” she said.

“Although many accountants have forms that ask if you’re a disqualified person, it only provides boxes to tick yes or no, and they don’t really explain what it means.”

There was a greater onus on practitioners to ensure this issue was not overlooked or underestimated by trustees, she said.

“They’re supposed to ask their clients that and so when someone wants to join or start up an SMSF, it’s one of the first things they should ask,” she noted.

“And it’s not just the dishonest offence, they have to ensure they cover off bankruptcy as well.”

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