Financial advisers and accountants need to carefully question whether clients have any concerns around their eligibility to be an SMSF trustee, with dishonesty offences, including those committed in a foreign country, capable of ruling them ineligible.
At the same time, minor offences committed many years earlier could also prevent someone from becoming an SMSF trustee, according to Heffron SMSF technical and education services director Leigh Mansell and senior SMSF specialist Alex Denham.
Speaking as part of a recent webinar, Denham said a person who had a problem with an SMSF in the past could be disqualified from being a trustee, but the criteria set by the ATO also covered other offences.
“All those who have done something ‘naughty’ in an SMSF and have been issued with civil penalty orders, or have been bankrupt or insolvent, or anyone who has been previously disqualified by the ATO are disqualified from being a trustee,” Denham said.
“A person is also a disqualified person if they have ever been convicted of a dishonesty offence, ever, anywhere in the world, not just in Australia. A dishonesty offence covers things like criminal offences, such as fraud or theft.
“A person who is, or has previously been, a disqualified person who becomes a trustee is committing an offence, so it is really important that if you are recommending that a client sets up an SMSF, you want to check they are not a disqualified person.”
Mansell said advisers and accountants were able to check the status of a person via the ATO’s disqualified trustee register, but it appeared few people were currently doing so.
“Eligibility is one of the things the ATO vets when a new fund is set up or when an application is made for a new SMSF trustee,” she said.
“The ATO checks if they are a fit and proper person and this should be another step in your advice process because you might set up an SMSF and the client can’t be a trustee, but you have gone through the advice and expense process of setting up a fund.”
Denham pointed out the ATO was only able to check for its own disqualifications and those from the Australian Prudential Regulation Authority, so other matters had to be voluntarily disclosed by clients.
“For those offences, advisers and accountants are really looking to the honesty of their clients,” she said.
Mansell added this issue arose when dealing with a client in his 60s who had stolen a car when aged 16 and after reading a consent to act form realised he was unable to sign it because he had a conviction for the theft.
“It was 40 years ago, and hard to prove, but he had a conviction and so was unable to sign,” she said.
