Bankruptcy in Australia can be convoluted
and perplexing. A question we normally get asked here at Bankruptcy Experts
Australia is 'what happens to my super if I file for Bankruptcy'? The reply for
most is simple, if your super is simply in a regulated fund or industry fund
like Sunsuper or Host Plus then nothing happens; your super is 100 % safe when
it involves Bankruptcy.
What if I have a Self Managed Super Fund?
This is a growing concern, think of the
growing number of members of Self-Managed Super Funds ("SMSFs")
lately; the ATO tells us it has increased Australia-wide from 758,589 in 2009
to 1,011,689 in 2014. So what happens to these Superfunds when it involves Bankruptcy?
Remember Bankruptcy Experts Australia is
not suggesting this post is the whole story, if you have any questions feel
free to call us on 1300 795 575. No matter if you call us or another person it
does not matter, just please don't walk into bankruptcy blind when it comes to
your SMSF actually we advise you find both legal and financial advice before
proceeding with any of the actions proposed in this article.
What is a Disqualified Person?
First and foremost, if you are considering Bankruptcy,
you can not be a part of a SMSF. Why? Because if you are dealing with
bankruptcy, you will be classified as a 'disqualified person'. And a
disqualified person cannot operate as an Individual Trustee. This poses a
problem since usually most of the SMSFs are just 2 people, which means each of
these members will need to also be the individual trustees. The role of trustee
sets a lot of legal rules, and if you are in this role I would highly encourage
you to become knowledgeable about them all-- including the fact that you can
not 'know or suspect' that one of you are bankrupt. So you can notice how an individual
bankruptcy can be quite harmful to a SMSF and as you can assume the process of Bankruptcy
for a SMSF is rather convoluted.
How long do I have to restructure my SMSF
Fund after I'm bankrupt?
So what takes effect if one of the members
of an SMSF does enter Bankruptcy?
For starters, the SMSF will have to be
reorganized. This means that you will have to consider your whole structure and
make certain it is meeting the basic conditions, including things like having a
new trustee that is not suffering from issues with Bankruptcy. The Australian
Tax office will supply you a 6 month 'grace period' to get this done before you
face penalties. And bear in mind, sometimes the best plan would be to simply
roll the fund into an industry or corporate fund.
Beyond these large scale restructuring
issues, there is a lot of paperwork to deal with too, and you need to be
continuously keeping the ATO informed of what is happening. This indicates you
will need to let them know that you have a bankruptcy issue with your current
trustee, that they are being removed as soon as possible know who the new
trustee/director is. The Bankrupt will also need to inform the ATO using the
form NAT 3036 (Found on the ATO website) and they must also notify ASIC of
their resignation.
During that 6 month period you will need to
remove the Bankrupt from the SMSF-- including their property and assets.
Remember if you are not sure call Bankruptcy Experts for some free advice on
1300 795 575.
What if I have a single member fund?
If you are a single member fund, then you
will need to appoint a new director, and it will then end up being their duty
to oversee the sale and relocation of assets into a managed fund. If there are
two or more members, than the bankrupt member will have to resign and the other
member will remove the property and halve the proceeds. They would then have to
decide if they choose to remain as a single member SMSF, or if they want to
roll everything into a managed fund. If both members are entering bankruptcy,
then they would definitely need to sell all assets at once and transfer the
liquid assets to the managed fund.
From this you can notice how when it comes
to Bankruptcy, even when one single member is dealing with issues, it can
affect the very existence of an SMSF. If you are already facing this trouble
yourself, or with a partner in a SMSF, please seek financial advice to make
certain you are satisfying the ATO requirements.
A simple solution ...
As I proposed earlier, a basic solution to
your SMSF situation is to put your super back into a normal regulated managed
fund before bankruptcy and save yourself all the problems outlined above. Bankruptcy
is never easy, but getting proper advice is the best first step. If you want to
discuss your possibilities further, give us a call at Bankruptcy Experts or
visit our website: www.bankruptcyexperts.com.au or just give us a call on 1300
795 575.
