Bankruptcy in Australia can be convoluted
and perplexing. A question we often get asked here over at Fresh Start
Solutions Gold Coast is 'what happens to my super if I declare Bankruptcy'? The
answer for most is simple, if your super is probably in a regulated fund or
industry fund like Sunsuper or Host Plus then nothing happens; your super is
100 % safe when it comes to Bankruptcy.
What if I have a Self Managed Super Fund?
This is a growing concern, take into
account the expanding number of members of Self-Managed Super Funds
("SMSFs") in recent years; the ATO tells us it has expanded
Australia-wide from 758,589 in 2009 to 1,011,689 in 2014. So what happens to
these Superfunds when it comes to Bankruptcy?
Remember Fresh Start Solutions Gold Coast
is not implying this short article is the complete story, if you have any
questions feel free to contact us on 1300 818 575. Whether you call us or
someone else it doesn't matter, just please don't walk into bankruptcy blind
when it comes to your SMSF in fact we recommend you obtain both legal and
financial advice before proceeding with any of the actions indicated in this
article.
What is a Disqualified Person?
First and foremost, if you are thinking
about Bankruptcy, you can not be a part of a SMSF. Why? Because if you are
taking on bankruptcy, you will be labeled as a 'disqualified person'. And a
disqualified individual cannot operate as an Individual Trustee. This poses a
problem due to the fact that usually most of the SMSFs are just 2 people, which
means each of these members have to also be the individual trustees. The duty
of trustee presents a lot of legal rules, and if you are in this role I would
highly encourage you to end up being aware of 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 rather destructive to a SMSF and as
you can assume the process of Bankruptcy for a SMSF is rather convoluted.
How long do I have so as to restructure my
SMSF Fund after I'm bankrupt?
So what comes about if one of the members
of an SMSF does enter Bankruptcy?
For starters, the SMSF will have to be
restructured. This means that you will want to consider your extensive
structure and ensure that it is meeting the basic conditions, including things
like having a new trustee that is not dealing with issues with Bankruptcy. The
Australian Tax office will offer you a 6 month 'grace period' to get this done
before you face penalties. And consider, 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
frequently keeping the ATO informed of what is happening. This means you need
to let them know that you have a bankruptcy problem with your current trustee,
that they are being removed as soon as possible know who the new
trustee/director is. The Bankrupt will also have to inform the ATO using the
form NAT 3036 (Found on the ATO website) and they will need to also notify ASIC
of their resignation.
Through that 6 month period you will need
to remove the Bankrupt from the SMSF-- including their property and assets.
Remember if you are uncertain call Fresh Start Solutions Gold Coast for some
free advice on 1300 818 575.
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 become their obligation
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 take away the property and halve the proceeds. They would then have
to decide if they would like to remain as a single member SMSF, or if they
would like to roll it all into a managed fund. If both members are entering
bankruptcy, then they would need to sell all assets right away and transfer the
liquid assets to the managed fund.
From that you can see how when it comes to Bankruptcy,
even if one single member is running into issues, it can affect the very
existence of an SMSF. If you are actually facing this concern yourself, or with
a partner in a SMSF, please seek financial advice to make certain you are
meeting the ATO requirements.
A simple solution ...
As I proposed earlier, a basic solution to
your SMSF problem is to put your super back into a normal regulated managed
fund prior to bankruptcy and save yourself all the problems outlined above. Bankruptcy
is never easy, but finding proper advice is the best 1st step. If you want to
discuss your options further, give us a call at Fresh Start Solutions Gold
Coast or visit our website:
www.freshstartsolutions.com.au/bankruptcy-GoldCoast.com.au or just give us a
call on 1300 818 575.
