This article covers the main ways a person becomes a disqualified person, the consequences of disqualification and the options available to those who are disqualified. (We refer to a trustee in this article as covering both individual trustees of an SMSF and directors of SMSF corporate trustees.)
The ATO will use its powers to render an SMSF trustee a disqualified person where it sees the need, especially for illegal early access breaches. There are other ways a person may become disqualified and some people may not even realise they are disqualified. Acting as an SMSF trustee while disqualified has serious ramifications. It is therefore prudent to be aware of which trustees are or may be disqualified and how a trustee may become disqualified.
Have you ever been convicted of an offence involving dishonest conduct?
The first way a person can be a disqualified person is if they were ever convicted of an offence involving dishonest conduct. This is regardless of whether the conviction was in Australia or a foreign country.
Whether an offence is 'in respect of dishonest conduct' is not defined. However, explanatory material to the legislation includes an example of a person convicted of a minor shoplifting offence 20 years ago as an example of an offence involving dishonesty that would disqualify a person. On the other hand, arguably a person convicted of assault is not disqualified, since there is no dishonest intent.
Generally a person who is convicted of an offence involving dishonest conduct is a disqualified person for life. An exception to this rule exists that allows the ATO to waive a person's disqualified status. Such an application must be made within 14 days of the conviction. Accordingly, a person who anticipates a conviction must act very quickly.
An application outside of this 14 day period may be considered if the ATO is satisfied that there are 'exceptional circumstances' that prevented the application from being made within time. Also, a waiver can only apply if the offence did not involve serious dishonest conduct where the penalty is no more than two years' imprisonment or a fine no greater than a specified amount (e.g. 120 penalty units).