Bankruptcy in Australia can be convoluted
and confusing. A question we commonly get asked here at Fresh Start Solutions
Hobart is 'what happens to my super if I apply for Bankruptcy'? The solution
for most is easy, if your super is normally in a regulated fund or industry
fund like Sunsuper or Host Plus then nothing 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, look into the
expanding number of members of Self-Managed Super Funds ("SMSFs") in
recent 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 concerns
Bankruptcy?
Remember Fresh Start Solutions Hobart is
not proposing this post is the entire story, if you have any questions feel
free to consult with us on 1300 818 575. Regardless 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 in truth we encourage you ask for both legal and financial
advice before proceeding with any of the actions recommended 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
going up against bankruptcy, you will be labeled as a 'disqualified person'.
And a disqualified person 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 both of these members must also be the individual trustees. The position
of trustee presents a lot of legal rules, and if you are in this role I would
highly urge you to be familiar with them all-- for example 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 detrimental to a SMSF and as you can
imagine the process of Bankruptcy for a SMSF is rather convoluted.
How long do I have 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 over-all structure
and ensure that 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 provide you a 6 month 'grace period' to get this
done before you face penalties. And keep in mind, sometimes the most suitable
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
constantly keeping the ATO informed of what is happening. This suggests you
will 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 must also notify ASIC of
their resignation.
Over 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 Fresh Start Solutions Hobart for some free
advice on 1300 818 575.
What if I use a single member fund?
If you are a single member fund, then you
will have to appoint a new director, and it will then end up being 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 have to
resign and the other member will remove 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 intend to roll all of it into a managed fund. If both members
are entering bankruptcy, then they will need to sell all assets as soon as
possible and move the liquid assets to the managed fund.
From that 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 right now facing this issue
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 recommended earlier, a straightforward
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 frustrations
outlined above. Bankruptcy is never easy, but finding proper advice is the best
first step. If you want to discuss your options further, give us a call at
Fresh Start Solutions Hobart or visit our website:
www.freshstartsolutions.com.au/bankruptcy-Hobart.com.au or just call us on 1300
818 575.
