We recently had a case where an individual looking to setup a SMSF found that having been convicted of a minor offense in their teenage years meant they may not be able to act as trustee of their SMSF now.

Under section 120 of the SIS Act, any person or constitutional corporation will be permitted to act as a trustee of an SMSF unless they have been disqualified from acting as the trustee of a superannuation entity.

An individual will be disqualified from acting as a trustee of a superannuation fund in the following circumstances:

  • if at any time:

– the individual has been convicted of any offence either in Australia or overseas involving dishonest conduct, or

– a civil penalty order in relation to a breach of the SIS Act was made in relation to the person

  • the person is insolvent under administration, or
  • the person has previously been disqualified from acting as a trustee by the regulator due to breaching the SIS Act or for being deemed not to be a fit and proper person to be a trustee of a superannuation entity.

A body corporate will also be disqualified from acting as the corporate trustee of a superannuation fund where:

  • a responsible officer of the body corporate is a disqualified person in their own right, or
  • a receiver, or a receiver and a manager, has been appointed in respect of property beneficially owned by the body corporate, or
  • an administrator has been appointed in respect of the body corporate, or
  • a provisional liquidator has been appointed in respect of the body corporate, or
  • the body corporate has begun to be wound up.

Persons who knowingly act as a trustee of a superannuation fund while disqualified can be subject to severe penalties, such as up to two year’s imprisonment.

Meaning of dishonest conduct

The term ‘dishonest conduct’ is not defined in the SIS Act and therefore takes its ordinary meaning. The Macquarie Dictionary defines dishonesty as to lie, cheat or steal, or to engage in fraudulent conduct. In relation to superannuation, the courts have also confirmed that offences involving theft or deception for personal gain will generally be considered dishonest. Therefore, a person convicted of an offence involving theft, fraud, bribery, embezzlement or tax evasion (amongst others) would generally be disqualified from acting as the trustee of an SMSF.

It is also important to note that the rule applies to disqualify a person who has ever been convicted of an offence involving dishonest conduct. Therefore, a person convicted of shoplifting 20 years ago would still be a disqualified person today.

Waiver of disqualified person status

Where a person has been disqualified due to being found guilty of an offence involving dishonest conduct, they can apply to the ATO to have their disqualified person status waived where the offence did not involve serious dishonest conduct.

Under section 126B of the SIS Act, an offence involves serious dishonest conduct if the penalty actually imposed for the offence is a term of imprisonment of at least two years or a fine of at least 120 penalty units.

Issues the ATO is required to take into account when determining whether to waive a person’s disqualified status include:

  • the nature of the offence committed by the applicant
  • the time elapsed since the applicant committed the offence
  • the applicant’s age at the time of the offence
  • whether the applicant would be likely to contravene the SIS Act or do anything that would result in their SMSF not complying with the SIS Act in the future.

However, for the ATO to consider the application it must be submitted in writing within 14 days of the person’s conviction. Therefore, where a person wishing to set up an SMSF was convicted of an offence involving dishonest conduct, such as theft or shoplifting many years ago, they would be prevented from applying to the ATO for a waiver.

Alternatively, under section 126J of the SIS Act, a person in this situation may apply to the Federal Court of Australia for an order that they are not a disqualified person.

In this case, no time limit applies.

For example, in a recent case, a person who was convicted of embezzling money from their employer over 25 years ago was able to successfully apply to the court for an order that they are not a disqualified person.