Bankruptcy in Australia can be complicated
and confusing. A question we typically get asked here at Bankruptcy Experts
Toowoomba is 'what happens to my super if I apply for Bankruptcy'? The answer
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 involves Bankruptcy.
What if I have a Self Managed Super Fund?
This is a growing concern, look at the
expanding number of members of Self-Managed Super Funds ("SMSFs")
lately; the ATO tells us it has expanded 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 Bankruptcy Experts Toowoomba is
not suggesting this short article is the complete story, if you have any
questions feel free to contact us on 1300 795 575. Whether you call us or
someone else it doesn't matter, just please don't walk into bankruptcy blind
when it comes to your SMSF indeed we advise you find 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 considering Bankruptcy,
you can not be a part of a SMSF. Why? Because if you are being confronted by
bankruptcy, you will be labeled as a 'disqualified person'. And a disqualified
person cannot operate as an Individual Trustee. This poses a problem because
usually most of the SMSFs are just 2 people, which means both of these members
have to also be the individual trustees. The role of trustee causes a lot of
legal rules, and if you are in this position I would highly recommend you to
end up being knowledgeable about 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 very 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 to restructure my
SMSF Fund once I'm bankrupt?
So what takes effect 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 need to consider your complete structure
and ensure that it is meeting the basic conditions, including things like
having a new trustee that is not dealing with issues with Bankruptcy. The
Australian Tax office will give you a 6 month 'grace period' to get this done
before you face penalties. And keep in mind, sometimes the very best plan would
be to simply roll the fund into an industry or corporate fund.
Beyond these large scale reorganizing
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
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 need to inform the ATO using the
form NAT 3036 (Found on the ATO website) and they will 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 uncertain call Bankruptcy Experts Toowoomba for some free
advice on 1300 795 575.
What if I have a single member fund?
If you are a single member fund, then you
will have to appoint a new director, and it will then be 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 take away the property and halve the proceeds. They would then have
to decide if they wish to remain as a single member SMSF, or if they want to
roll all of it into a managed fund. If both members are entering bankruptcy,
then they will need to sell all assets right away and transfer the liquid
assets to the managed fund.
From this 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 at this point facing this
matter 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 proposed 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 getting proper advice is the best initial step. If you want
to discuss your options further, call us at Bankruptcy Experts Toowoomba or
visit our website: www.bankruptcyexpertsToowoomba.com.au or just give us a call
on 1300 795 575.