How will bankruptcy affect your superannuation?

Posted on August 26th, 2016

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Bankruptcy and SuperannuationKatie Thompson is a Solicitor at Mullane & Lindsay in Newcastle and specialises in commercial dispute resolution & litigation, and employment law.

A person’s superannuation interests are generally not a type of property that is available to be divided among creditors in the event of bankruptcy. However, there are other legal and financial hurdles that a bankrupt person may face if their superannuation interests are held in a self-managed superannuation fund (SMSF).

According to the Superannuation Industry (Supervision) Act 1993 (SISA) a bankrupt person is disqualified from acting as trustee of any SMSF or as director of the SMSF’s corporate trustee. Therefore, a bankrupt person cannot remain a member of the SMSF because in order to qualify as a SMSF each member of the fund must be either a trustee or director of the SMSF’s corporate trustee. If the SMSF does not meet this requirement, it could result in the income of the fund being taxed at a rate of 45%.

The SISA provides a 6 months grace period in light of bankruptcy for the SMSF to restructure to meet the requirements under the legislation. During this time the bankrupt person should be removed as the trustee/director of the corporate trustee and roll over their superannuation interest from the SMSF into an industry or corporate fund.

Where a person is a trustee of a SMSF and becomes bankrupt there are a number of steps which need to be taken within a strict timeframe. The bankrupt person must immediately inform the ATO of bankruptcy and ASIC of the resignation of a director of the SMSF. Trustees of a SMSF should ensure that they receive prompt legal advice about their rights and responsibilities upon bankruptcy in order to avoid heavy penalties, possibility imprisonment.

Katie Thompson is a Solicitor at Mullane & Lindsay, and practises extensively in Commercial and other Litigation and Employment Law. If you require any assistance in these areas please contact Katie Thompson or contact our Newcastle office. 

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