Bankruptcy in Australia can be complicated
and perplexing. A question we typically get asked here over at Fresh Start
Solutions Perth is 'what happens to my super if I file for Bankruptcy'? The
answer for most is straightforward, if your super is simply in a regulated fund
or industry fund like Sunsuper or Host Plus then very little happens; your
super is 100 % safe when it comes down to Bankruptcy.
What if I have a Self Managed Super Fund?
This is a growing concern, think of the
developing number of members of Self-Managed Super Funds ("SMSFs") in
the last few years; 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 comes to Bankruptcy?
Remember Fresh Start Solutions Perth is not
proposing this article is the complete story, if you have any questions feel
free to contact us on 1300 818 575. Regardless if you call us or another person
it doesn't matter, just please don't walk into bankruptcy blind when it comes
to your SMSF in truth we encourage you seek both legal and financial advice
before proceeding with any of the actions suggested 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
confronting bankruptcy, you will be identified 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 must also be the individual trustees. The job of trustee poses a
lot of legal rules, and if you are in this role I would highly recommend you to
become familiar with them all-- for example the fact that you can not 'know or
suspect' that one of you are bankrupt. So you can see 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 much time do I have so as to
restructure my SMSF Fund once I'm bankrupt?
So what comes to pass 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 need to consider your whole structure
and ensure that it is meeting the basic conditions, including things like
having a new trustee that is not experiencing issues with Bankruptcy. The
Australian Tax office will supply you a 6 month 'grace period' to get this done
before you face penalties. And keep 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 means you
ought 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 have to inform the ATO using the
form NAT 3036 (Found on the ATO website) and they need to also notify ASIC of
their resignation.
In the course of that 6 month period you
will need to remove the Bankrupt from the SMSF-- including their property and
assets. Remember if you are unsure call Fresh Start Solutions Perth 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
responsibility to oversee the sale and relocation of assets into a managed
fund. If there are two or more members, than the bankrupt member will need to
resign and the other member will clear away the property and halve the
proceeds. They would then need to decide if they choose to remain as a single
member SMSF, or if they want to roll it all into a managed fund. If both
members are entering bankruptcy, then they would definitely need to sell all
assets as soon as possible 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 matter yourself, or with
a partner in a SMSF, please seek financial advice to make sure you are
fulfilling the ATO requirements.
A simple solution ...
As I suggested 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 finding proper advice is the best first step. If you want to
discuss your options further, call us at Fresh Start Solutions Perth or visit
our website: www.freshstartsolutions.com.au/bankruptcy-Perth.com.au or just
give us a call on 1300 818 575.
