04/09/2012

Your client wants to establish an SMSF but confides in you that they had some youthful indiscretions where charges were proven but no conviction was recorded.  Where does that leave your plan for an SMSF?  Can your client be a trustee or are they a disqualified person?

A disqualified person cannot be a Trustee for an SMSF, nor can they appoint an Enduring Power of Attorney to act for them as a Trustee in order to get around their personal disqualified status.

The SIS Act (s120) provides that a person is a disqualified person if:

• they have been convicted of an offence in respect of dishonest conduct; or
• a civil penalty order has been made in relation to that person; or
• they are an insolvent under administration; or
• they have been disqualified by the Commission of Taxation (ATO).
  

Although what about the fact that no conviction has been recorded?  A person is disqualified if

• they are charged with an offence involving dishonest conduct, and
• the charge is found proven against them

regardless of whether a conviction is actually recorded or not.

The offence can be an offence under a Federal, State or Local law.

What do you do after this revelation?  Ask your client to get copies of the court documents (required documents are outlined in s126B(5) of the SIS Act) and make enquiries as to whether:

1. the charge was proven; and
2. what the penalty requirements were for that charge. Your client should contact the lawyer who assisted them with their defence or the court where the matter was heard for assistance in answering these questions.
   

If the charge was proven and the penalty requirements for that charge were:

• 2 years or more; or
• a fine of 120 penalty units or more

this is considered to be an offence involving ‘serious dishonest conduct’ and this is the end of the road for your client as an SMSF is no longer an option.

If the charge was not proven, or had penalties less than the above penalty requirements your client can apply to the ATO for a waiver of being a ‘disqualified person’.

The SIS Act outlines in s126B how an application can be made in writing to the ATO.  Your client will need to provide you with specific information as the written application must:

• identify the offence to which the application relates;
• attach a certified copy of court documents (outlined in s126B(5) SIS Act);
• provide consent to the ATO to make enquiries in relation to the Applicant relevant to the application; and
• be signed by the Applicant.
  

An application is to be made within 14 days after the person’s conviction (s126B(3) SIS Act). 
If an order was made convicting the person then the 14 day time limit for application will apply. If the charge was proven (and the penalty requirements for the charge are below the threshold) but no conviction was recorded it would appear that no time limit applies in making the application for waiver.

The ATO must make a decision within 60 days of receiving the application.

If you have any questions in relation to this article, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.