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Trustee obligations of a disqualified person

There are ramifications when a trustee in a self managed super fund (SMSF) becomes a disqualified person.

An individual can become a disqualified person if any of the following conditions apply. If they:

-have been convicted of an offence involving dishonesty

-have been subject to a civil penalty order under the super laws

-are insolvent under administration

-have been disqualified by a court or regulator

A company is a disqualified person if any of the following conditions apply:

-a responsible officer of the company (such as a director, secretary, or executive officer) is a disqualified person

-a receiver, official manager, or provisional liquidator has been appointed to the company

-action has been taken to wind up the company

Under superannuation laws, if an individual becomes a disqualified person they must notify the ATO immediately of their disqualification- unless they were disqualified by the ATO- and cease being, or acting as, a trustee.

It is an offence for a disqualified person, who is aware of their status of being disqualified, to continue to be, and act, as a trustee of the SMSF.  Penalties for this can include fines and in some cases, imprisonment.

To determine whether a disqualified person can again become an individual trustee of a SMSF depends on how they were made disqualified:

Convicted of an offence involving dishonesty

An individual may apply for a declaration waiving their disqualified status within 14 days of the date of their conviction, and only if the penalty or prison term is less than stated in the legislation

Insolvent under administration

Once the individual is no longer insolvent under administration they are no longer a disqualified person

Disqualified by a court or regulator

Legislation sets out the circumstances in which an individual can request their disqualification to be revoked.

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Investing in shares vs property in SMSFs

March 19, 2020

Shares and property are two popular investment options for those with a self-managed super fund (SMSF). However, they both have very different attributes and choosing the one that will achieve the best outcome for an SMSF depends on your personal goals and situation.

While the price of shares can vary drastically, property is a relatively stable asset, making it appealing to those who want more security and predictability. Property prices are also negotiable unlike shares, and you can generally borrow money at a lower rate for property purchases.

It may seem hard to find the perfect investment property, but older and undercapitalised properties can be renovated for profit. However, returns from property rentals can be dented due to factors such as land tax, utilities and rates, maintenance and tenancy vacancies.

Shares are more dynamic and volatile than property. One advantage is the accessibility of investing in shares, as you can enter the share market with a few thousand dollars – much less than what you need to invest in a property.

Maintaining a portfolio of quality shares that pay tax-effective dividends may be a good way to fund retirement. With the right portfolio allocation, shares also have the potential to provide a better, stronger income than property rentals, as long as that income is sustainable and increasing.

Property can generally be used as a wealth-creation tool, while shares can create a reliable retirement income. For those who can afford to put more money into investments, it may be a good idea to consider investing and diversifying in both. If you’re unsure about which investment option is right for you, seeking financial advice may be the best option.