Disqualified Person status not waived

To be a member of an SMSF, you must participate in the management of the SMSF.  This requires each member to be a trustee or director of the corporate trustee.  Consequently, if you cannot be a trustee or a director of the corporate trustee, you cannot become a member.  If you subsequently become ineligible to be a trustee or a director of the corporate trustee then you must either cease to be a member (by transferring your benefit to a retail or industry fund) or convert the fund to being a small APRA fund (in which case you cease to participate in the management of the fund).

A member of an SMSF who is convicted of an offence involving dishonesty will be a disqualified person and thereby cease to be eligible to act as a trustee or director of the corporate trustee.  This problem is not solved by the member resigning as trustee (or director) and having their enduring attorney appointed in their stead (as the legislation expressly provides this not to be a solution).

However, such a member can apply to the ATO to have their “disqualification status” waived where the dishonesty offence is not serious (ie resulted in a penalty of less than two years imprisonment or less than a $20,400 fine) and the ATO is satisfied that the member is highly unlikely to contravene the SIS Act or do anything which would result in an SMSF not complying with the SIS Act.

In a recent Tasmanian case, Mr Shaw applied to the ATO to have his “disqualification status” waived.  The ATO declined to do so and on appeal to the Administrative Appeals Tribunal, the Tribunal affirmed the ATO’s decision.

Mr Shaw had argued that as his dishonest conduct was unrelated to either superannuation or taxation issues, the ATO should have acceded to his request.  Mr Shaw’s dishonest conduct related to making false statutory declarations in relation to driving penalties and in “trafficking” in demerit points.

Mr Shaw clearly satisfied the first requirement (his sentence was six months imprisonment).  However, Mr Shaw failed the second requirement as he had not demonstrated that he was highly unlikely not to contravene the SIS Act or not cause an SMSF to contravene the SIS Act.  Presumably both the ATO and the Tribunal considered that anyone willing to make a false statutory declaration and engage in demerit point trafficking, is likely to contravene the SIS Act when it is in their immediate interest to so do.