Compliance / Aug 09, 2021

What to do about disqualified trustees

Alicia Thomson
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As per the quarterly update on the SMSF industry statistics by the ATO, there were 597,396 active SMSFs in Australia. When dealing with an industry that holds more than $787 billion in assets, it is important that appropriate people (trustees) are decision makers. That is why it is so important to monitor who the trustees are for an SMSF.

Under Section 126K of the SISA, a person commits an offence if they knowingly act as a trustee, or a director of a corporate trustee, of an SMSF while they are a disqualified person and are a trustee of an SMSF and does not notify the ATO in writing immediately if they are or have become a disqualified person.

After feedback from SMSF professionals, the ATO created the disqualified trustee register and first published this online in 2012. This has since been updated every quarter. Prior to the disqualified trustee register, an SMSF professional would need to review notices posted in Government Notices Gazette. Unfortunately, the register does not include any individuals who were disqualified prior to 2012. The list currently consists of 3313 people who are unable to become trustees of an SMSF. They are also unable to be a director or other responsible officer of a corporate trustee.

How do you become disqualified?

A person may become disqualified if they answer “yes” to any of the ATO’s trustee checklist questions. The ATO can also disqualify a person if the SMSF continues to receive qualified audits. The ATO said that when deciding whether to disqualify a trustee, it will take into account how serious the contraventions are, how many contraventions have occurred and how likely it is that they will continue to be non-compliant. Personal character is considered along with the circumstances surrounding any contraventions.

How do you become un-disqualified?

The disqualified trustee will need to apply to the ATO to have their disqualified status waived. This is only possible if the penalty imposed for the offence was not a:

  • Term of imprisonment for more than two years; or
  • Fine of more than 120 penalty units.

The application should be made to the ATO within 14 days of the conviction. They will accept applications after this period however, you will need to explain why your application is late. You cannot become a trustee again until the ATO notifies you of their acceptance to waive the disqualified status.

Limitations of the disqualified trustee register

As the register is only published every 3 months, this can leave quite a gap between a person being disqualified and being registered as disqualified. It is therefore important that any new trustee reviews the ATO checklist and ensure they can answer ‘No’ to each question.

The register only includes the details of the disqualified person at the time of their disqualification. It does not update if the disqualified person’s name changes.

Just because a person is not listed on the disqualified trustee register does not mean that they are not disqualified for other reasons. For example, the register does not list people who are bankrupt.

When checking to see if a person is eligible to become a trustee, the following registers should be reviewed in addition to the ATO’s disqualified trustees register:

  • Australian Financial Security Authority’s National Personal Insolvency Index
  • Bankruptcy Register Search for insolvency and bankruptcy information
  • ASIC’s register of banned and disqualified persons

The ATO expects that the SMSF’s auditor will be reviewing these registries prior to issuing the audit report.

To see more information about the ASIC’s banned and disqualified list of people and corporations as well as the list, click here.

To view the ATO’s disqualified trustee’s register, click here

If you have any other questions about managing your client accounts (or solving issues with disqualified trustees), please speak with Mark Phillips or Alex Polorotoff on 1300 364 597 or via email at mark.phillips@interprac.com.au or alex.polorotoff@smsfengine.com.au.

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