SMSF trustees have been warned to check the suitability of other people who may be included in a fund as a trustee with a chequered compliance history may cause the whole arrangement to be shutdown.
Bill Orow, a barrister with Greens List and a member of the Victorian Bar, said not enough scrutiny was taking place questioning those setting up SMSFs regarding their history or that of others who may be joining the fund.
“Before you set up a fund, you are going to set it up with a number of people as members who would become trustees or directors of the trustee company,” Orow said.
“A lot of practitioners never ask about their history, but I think they should because their history will come into play.
“If there is any small non-compliance, the ATO will look back at their history and say this person should be disqualified and the fund will become a non-complying fund.”
He warned while the regulator will focus on ensuring issues within an SMSF are corrected, it was also concerned about how trustees will act in the future.
“The ATO is concerned about rectification and what a trustee will do about it in future. Are they dealing with the kind of people who will deal with issues in the future?” Orow explained.
“If the ATO forms a view a trustee is unlikely to be a person that they trust to deal with these matters seriously, they will not be too accommodating when deciding a trustee ought to be disqualified.”
According to Orow this placed the onus back on trustees and their advisers to vet potential members from the outset.
“There is a need to address those issues before accepting certain members and if one of them is going to present a liability, it might be that you set up a separate fund for them,” he noted.
“If they are disqualified, their fund becomes an APRA (Australian Prudential Regulation Authority)-regulated fund and that’s the end of the story without jeopardising every other person that might be involved in the arrangement.”''