‘Alarming’ increase in SMSF trustee disqualifications

‘Alarming’ increase in SMSF trustee disqualifications

There has been an “alarming” increase in the number of SMSF trustees and directors of SMSF trustee companies that are being declared disqualified persons by the ATO, with one industry lawyer suggesting many do not realise the “substantial” adverse implications.

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.”

‘Alarming’ increase in SMSF trustee disqualifications
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