Becoming a bankrupt can be a stressful experience for any individual and there a number of significant impacts. One such important area of concern is in relation to a bankrupt’s monies in a superannuation fund.
The general principle is that a bankrupt may keep his or her interest in a superannuation fund as long as:
The above applies both to public superannuation funds and self-managed superannuation funds.
At such a time it can be overlooked the impacts of bankruptcy on a self-managed superannuation fund and the tax consequences of same – even if the monies are protected under bankruptcy.
The Superannuation Industry (Supervision) Act 1993 (“SIS”) specifies that a disqualified person includes an insolvent under administration (e.g. an undischarged bankrupt or person who has executed an insolvency agreement) while also that all members of a SMSF must be a trustee or director of a corporate trustee (some exceptions apply).
However SIS sets out that a disqualified person must not intentionally be or act as a trustee or a responsible officer of the corporate trustee of a superannuation entity. Therefore at law a bankrupt is not permitted to continue to be the trustee of their SMSF or a director of the company that is the corporate trustee of their SMSF.
Should the SMSF not take any action then it will fail to meet the requirements prescribed under SIS and if not rectified, become a non-complying regulated superannuation fund.
If a superannuation fund is deemed to be a non-complying superannuation fund this can have significant adverse tax consequences for the fund and its members.
A non-complying superannuation fund’s assets are taxed at 47% at the time it became non-compliant and at 47% on earnings from the funds for every year after. There are also penalties for not notifying the ATO of the fund’s non-compliance.
However the SIS affords a SMSF six (6) months to rectify non-compliance and the SMSF can do this by one of three options:
Each of the above options carries its own tax and practical considerations and issues and specialist advice should be sought.
An Important Message
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