Bankruptcy in Australia can be involved and
difficult to understand. A question we typically get asked here at Bankruptcy
Advice Darwin is 'what happens to my super if I file for Bankruptcy'? The reply
for most is straightforward, if your super is actually in a regulated fund or
industry fund like Sunsuper or Host Plus then absolutely 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 developing number of members of Self-Managed Super Funds
("SMSFs") in the last few years; the ATO tells us it has grown
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 Advice Darwin is not
indicating this post is the complete story, if you have any questions feel free
to contact us on 1300 879 867. Whether you call us or somebody else it doesn't
matter, just please don't walk into bankruptcy blind when it comes to your SMSF
actually we recommend you look for 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 facing bankruptcy, you
will be categorized 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 both of these
members must also be the individual trustees. The role of trustee poses a lot
of legal rules, and if you are in this role I would highly encourage you to
become familiar with them all-- including 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 very detrimental to a SMSF and as you can assume the process
of Bankruptcy for a SMSF is rather convoluted.
How much time do I have to restructure my
SMSF Fund once I'm bankrupt?
So what comes about if one of the members
of an SMSF does enter Bankruptcy?
For starters, the SMSF will need to be
reorganized. This means that you will have to consider your entire structure
and ensure that it is meeting the basic conditions, including having a new
trustee that is not encountering issues with Bankruptcy. The Australian Tax
office will give you a 6 month 'grace period' to get this done before you face
penalties. And bear 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
frequently keeping the ATO informed of what is happening. This indicates you
need to let them know that you have a bankruptcy complication 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 need to 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 exactly sure call Bankruptcy Advice Darwin for some
free advice on 1300 879 867.
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 be their obligation to
oversee the sale and transfer 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 clear away the property and halve the proceeds. They would then
want to decide if they wish 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 right away and move the
liquid assets to the managed fund.
From that you can see how when it comes to Bankruptcy,
even though one single member is dealing with issues, it can affect the very
existence of an SMSF. If you are at this point facing this trouble yourself, or
with a partner in a SMSF, please seek financial advice to make sure you are
satisfying the ATO requirements.
A simple solution ...
As I proposed earlier, a simple solution to
your SMSF situation 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 getting proper advice is the best initial step. If you want
to discuss your options further, contact us at Bankruptcy Advice Darwin or
visit our website: www.bankruptcy-advice.com.au/Darwin.com.au or just call us
on 1300 879 867.
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