Bankruptcy in Australia can be convoluted
and difficult to understand. A question we commonly get asked here at Fresh
Start Solutions Sydney is 'what happens to my super if I file for Bankruptcy'?
The answer for most is easy, if your super is actually in a regulated fund or
industry fund like Sunsuper or Host Plus then nothing happens; your super is
100 % safe when it involves Bankruptcy.
What if I have a Self Managed Super Fund?
This is a growing concern, look into the
developing number of members of Self-Managed Super Funds ("SMSFs")
over 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 concerns Bankruptcy?
Remember Fresh Start Solutions Sydney is
not proposing this article is the entire story, if you have any questions feel
free to contact us on 1300 818 575. No matter 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 actually we strongly recommend 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
going up against bankruptcy, you will be categorized 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 the two of these members need to also be the individual trustees. The
duty of trustee presents a lot of legal rules, and if you are in this position
I would highly recommend you to be knowledgeable about 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 rather destructive 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 to pass 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 over-all structure
and ensure that it is meeting the basic conditions, involving 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 absolute 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
constantly keeping the ATO informed of what is happening. This means you will
need 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 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 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 Sydney 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 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 remove the property and halve the proceeds. They would then want to
decide if they would like to remain as a single member SMSF, or if they intend
to roll it all into a managed fund. If both members are entering bankruptcy,
then they would need to sell all assets at once and move the liquid assets to
the managed fund.
From that you can notice how when it comes
to Bankruptcy, even if one single member is facing 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 sure you are
satisfying the ATO requirements.
A simple solution ...
As I suggested earlier, a basic solution to
your SMSF issue 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 1st step. If you want to
discuss your options further, call us at Fresh Start Solutions Sydney or visit
our website: www.freshstartsolutions.com.au/bankruptcy-Sydney.com.au or just
give us a call on 1300 818 575.
