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Financial misconduct key disqualifying factor

Evidence of dishonest conduct will not automatically disqualify an individual from being an SMSF trustee unless it is of a financial nature.

Financial advisers should be aware the dishonest conduct of an individual in the main has to be of a financial nature to disqualify that person from becoming an SMSF trustee, a sector specialist has said.

“Dishonest conduct in itself is a relatively difficult concept to understand, in the sense of an SMSF, because it’s ultimately around dishonest conduct with links to financial management and decision-making. So your offences around fraud, theft and those sorts of things are far more relevant than traffic infringements and [the like],” SuperGuardian education manager Tim Miller said during his latest technical webinar.

“So you’ve got this idea of clients and trustees who maybe do the wrong thing, but [it doesn’t mean] they necessarily meet the automatic definition of a disqualified person.”

The process of determining if a person is eligible to be an SMSF trustee is, however, deeper and a series of other tests must be satisfied as well, he said. One such requirement is to ensure the individual has not been subject to a civil penalty imposed under the Superannuation Industry (Supervision) Act.

According to Miller though, advisers need not be too concerned about one measure that could see a person barred from becoming an SMSF trustee.

“The tax office has this capacity to remove somebody because they deem them not to be a fit and proper person. Now that fit and proper person [criteria], if you read through the text from the regulator on that, [means] they’ve got to go through a whole heap of steps and [these] are going to look at [elements like an individual’s] standing in the public, what sort of work they are performing … and those sorts of things to make the determination,” he noted.

“I can honestly say that I’ve never seen a trustee removed under that fit and proper person position based on a regulatory decision.

“I’ve seen some pretty terrible trustees and that’s to suggest I’ve seen some convicted of offences that we would all think are abhorrent in what they’ve done, but because it wasn’t related to their finances, the tax office has come back to us and said our hands are tied and they can be a trustee of a self-managed superannuation fund.”

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