By Connie Tam and Liyan Tay
What happens to my superannuation when I go bankrupt? Can my Trustee in bankruptcy take my $10,000 early access to superannuation during the Covid-19 pandemic?
In general, any interest of a bankrupt in an ATO regulated superannuation fund (including Self-Managed Super Fund), an exempt public section superannuation scheme or an approved deposit fund within the meaning of the Superannuation Industry (Supervision) Act 1993 (“Super Act”) and payment to a bankrupt from the fund which is received on or after the date of bankruptcy (if not a pension) is exempt from realisation by a Trustee in bankruptcy under the provisions of the Bankruptcy Act 1966 (“the Act”). Therefore, they are not an asset or income in a bankrupt estate and do not vest in the Trustee in bankruptcy pursuant to section 116(2) of the Act. However, if the benefits are held in a non-complying super fund, the benefits are vested in the Trustee in bankruptcy as at the commencement of the bankruptcy.
If you are receiving a pension income from your superannuation fund, the pension received will be assessed as income for the relevant income contribution assessment period under the provisions of the Act.
Upon bankruptcy, a bankrupt can no longer be a member or trustee/director of a corporate trustee of a self-managed super fund (SMSF). This means either one of two things will need to happen:
- Remove the bankrupt as a member and trustee or director of the corporate trustee.
- Remove all trustees and appoint a Registrable Superannuation Entity to act as trustee. These are specific companies that charge to act as trustee of the Fund. When this occurs, the Fund is no longer an SMSF, but rather a Small APRA Fund (SAF).
Should option 1 be used, the below are the recommended procedures to be taken upon bankruptcy:
- Notify your trustee and the ATO within twenty-eight (28) days of your bankruptcy. If you are a director of a corporate trustee, you are also required to notify ASIC; and
- Open a new superannuation account with another complying super fund which is not an SMSF, and ask the trustee to transfer your superannuation interest to that fund.
There are also other actions the SMSF itself needs to potentially take, such as liquidate investments, change the trustee and/or update the legal owner of all of the investments to the new trustee.
If you have received or are going to receive payments from your superannuation fund under the Coronavirus Economic Response Package during your bankruptcy period, the funds are exempt from bankruptcy.
Importantly, if you receive any superannuation payments prior to your bankruptcy, the funds received or assets purchased using the funds received are claimable by a Trustee in bankruptcy. These funds and assets purchased with such funds are not exempt from bankruptcy. If you are using the exempt money received during your bankruptcy to purchase any assets, these assets are exempt.
Pursuant to Sections 128B and 128C of the Act, any superannuation contributions made to defeat creditors are void against the Trustee in bankruptcy if:
- the transfer of property is made by way of a contribution to an eligible superannuation plan;
- the property would probably become part of the estate if it was not transferred;
- the main purpose of the transfer was:
- to prevent the transferred property from becoming divisible among the creditors of the bankrupt estate; or
- to hinder or delay the process of making the property available for division among the creditors of the bankrupt estate.
The superannuation fund type definition can be found here: https://superfundlookup.gov.au/Help/FundTypeDefinitions
If you are unsure whether your superannuation fund is a complying super fund, you may conduct a search via the Super Fund Lookup website: https://superfundlookup.gov.au/
Superannuation and bankruptcy can be a complicated area. Before making any decisions, you should always seek expert advice.
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