SMSF trustees who have been convicted of dishonest conduct are usually required to exit the fund, but there are other options to avoid disqualification by the ATO, according to a legal firm.
Townsends Business and Corporate Lawyers solicitor Johnathan See said there are some exceptions under which a trustee can apply to waive the disqualification process, provided the dishonesty offence is not extreme.
“They can apply for a waiver of disqualified status if the offence is not a serious dishonest conduct, for example, the penalty imposed for the offence was not either a term of imprisonment for more than two years or fine of more than 120 penalty units,” See said.
“If the penalty imposed for the offence is imprisonment of more than two years, but the person spends less than two years in prison, they are still disqualified to act as an SMSF trustee.”
In order for the disqualified status to be waived, the SMSF trustee will need to submit an application to the ATO within 14 days of the conviction, and late applications will be allowed if an explanation, approved by the regulator, is provided.
While the Superannuation Industry (Supervision) (SIS) Act 1993 does not clarify what offences are considered as dishonest conduct, the ATO has defined it as fraud, theft and illegal activity or dealings.
See said if a trustee is disqualified, the individual must resign immediately in order to comply with the SIS Act, but suggested the trustee can pursue different options.
“Stay in the fund. As the disqualified person can no longer act as trustee, they can appoint a registrable superannuation entity licensee as trustee and convert the SMSF into a small APRA (Australian Prudential Regulation Authority) fund. By converting the fund, they still keep their membership in it.”
The trustee could also leave the fund provided there are other members to continue managing the SMSF, he added.
“If the SMSF has more than one member, they can roll over their benefits to a complying super fund or withdraw their benefits as a lump sum if they are eligible to do so. These are all possible if the SMSF has enough cash to pay their benefits,” he said.
“If the SMSF is a single-member super fund, they can wind up the SMSF by rolling over their benefits to another super fund or withdrawing their benefits as a lump sum if they are eligible to do so. Even if the SMSF has other members, the SMSF will also need to be wound up if keeping it will not make any practical sense.”