For the 3 years from 2023 to 2025 the ATO has disqualified around 2,000 SMSF trustees or trustee directors. Given that the register shows that 5,730 individuals have been disqualified since 2012 it’s obvious that this has now become an increasingly popular option for the ATO.
Most disqualifications have been due to illegal early access, but a number have been for administrative issues such as failure to lodge.
When the ATO disqualifies an SMSF trustee, the trustee must step down, the fund must be restructured or wound up, and the member’s benefits moved elsewhere. But this isn’t the end of the matter. A disqualification follows the person, not the fund. In most cases it is permanent, and its effects can reach beyond the fund.
ATO disqualifications are published on the Federal Register of Legislation and listed on the ATO’s Disqualified Trustees Register. The register is updated quarterly, and shows the person’s name, location and date of disqualification. It’s indexed by search engines so a simple search of a person’s name can bring one up. There is no expiry date and no practical way to keep it private.
It’s an offence, carrying up to two years’ imprisonment, for a disqualified person to act as trustee, investment manager or custodian of any superannuation entity, or as a director or executive of a company in one of those roles. That includes APRA-regulated funds, fund managers and custodians, which can close off a large part of the financial services job market. It also means a disqualified person cannot step into an SMSF role for their family, whether as executor of a spouse’s estate, attorney for an ageing parent or successor director.
An ATO disqualification is, in substance, a formal finding that the person is not fit and proper to run a super fund. Many professions are regulated on the same test:
- Tax and BAS agents must remain fit and proper to keep their Tax Practitioners Board registration.
- SMSF auditors are registered by ASIC only if fit and proper, and registration can be cancelled.
- Financial advisers must be of good fame and character, and ASIC can ban those who are not.
- Bank and insurance executives face APRA fit and proper assessments that look at regulatory history.
Professional bodies such as CA ANZ, CPA Australia, the IPA and the SMSF Association generally require members to disclose regulatory action, and charity boards commonly ask for probity declarations. The disqualification does not automatically cancel any of these, but it becomes evidence in every future assessment. Failure to disclose can be treated more seriously than the disqualification itself.
Business insurance policies such as professional indemnity, directors and officers, and management liability insurance still carry a full duty of disclosure. Proposal and renewal forms commonly ask whether the applicant has been subject to regulatory action or disqualification. If the disqualification is not declared, it may affect a claim or might result in it being rejected outright if the non-disclosure was fraudulent.
Disqualification is often treated as the end of a compliance problem. For the individual, it can be the beginning of a longer one: permanent, public, and relevant to careers, licenses, insurance and family arrangements that have nothing to do with the original fund. A person who receives an ATO notice of intention to disqualify has 21 days to ask for a decision to be reconsidered. Better still, trustees should be careful to comply with their obligations and avoid this result altogether.
On related note, if you are interested in transferring your SMSF administration to ourselves we have a transferring fee arrangement you might find of interest. I’m always happy to have a chat about what we can do for you. Feel free to call David Busoli on 0499 778 584.
