The commissioner of taxation’s annual report indicates that 585 SMSF trustees were disqualified in 2013/2014. This represents a 33 per cent increase from 2013, when 440 trustees were disqualified.
This figure has almost doubled since 2012, when the ATO reported 295 disqualified persons.
The ATO has recently implemented a more comprehensive case selection model to better target SMSFs with issues, leading to the higher likelihood of disqualification and non-compliance, said DBA Lawyers director Daniel Butler.
The ATO is now pushing for disqualified person status more often in settlement cases when it loses confidence in the individuals running a fund, Mr Butler said.
Mr Butler indicated that a disqualified person should, technically, cease to be a trustee or director immediately, and has a time frame of six months to appoint an approved trustee or roll over their benefits to a large superannuation fund.
“This hits hard where the member has selected investments that they wish to maintain as many approved trustees will not want to maintain assets such as residential or business real property, or specific investments in private unit trusts, or companies given most approved trustees mainly invest in mainstream investments that are readily traded on established and liquid markets,” Mr Butler said.
Many investors also don’t comprehend how a disqualification could impact their professional or personal reputation, Mr Butler said.
He noted the importance of social media in forming a view on a person’s reputation, and the fact that a disqualification would be accessible via use of a search engine.
“The official ATO notice of disqualification broadly states that ‘You are not a fit and proper person to be an SMSF trustee/director’. The ATO is well aware of this adverse impact and see this as having a possible deterrent effect,” Mr Butler said.
“However, many have no idea how badly this may impact them in a financial and reputational sense.
“A number of disqualified persons are continually required to explain that being disqualified from being an SMSF trustee/director does adversely impact their service or business offering and can also result in a significant decline in future business and income.”
Why is this alarming? Wouldn’t this mean that the increasingly stringent rules for trustees are just doing their job? That the auditing process has improved? That the type of trustees we are aiming for is better? Wouldn’t this mean that the general SMSF sector is ‘cleaning itself up’ and improving to ensure those that are long time trustees are obliging to these rules or getting out (even if through disqualification…)? Positives people, positives!
I believe this is a good sign and a true indication that the system is working and maturing. Many people should not be allowed with in a mile of a SMSF and it is better that we see deliberate offenders disqualified. The fact it makes up just .058% of the 1,005,678 Total Members (Sept 2014 ATO stats) is heartening.
It is about time the ATO started disqualifying trustees. As an auditor I had one fund where the trustee (a financial services professional) had not lodged a return for over 10 years. The money from the fund had been loaned to various related party entities. Qualified audit opinions were issued, ACRs were issued and to date some 3 years later the fund is still operating, no trustees have been disqualified & the fund retains its complying status.
Perhaps Katarina or someone else could be kind enough to make this revelation relevant by giving us some idea of the percentage of all smsf trustees these numbers represent & some typical reasons for disqualification if the ATO have revealed them.
Why is it alarming ….. there are over 1,000,000 trustees or directors of Trustees. The actual numbers are trifling. A certain number of people are always going to do the wrong thing.