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New insolvency laws affect SMSFs

insolvency SMSFs

Changes to insolvency laws mean the disqualification of corporate trustees can now occur in cases where restructuring takes place.

Following the federal government’s decision to change the insolvency legislation framework, the ATO has warned SMSFs with a corporate trustee may be disqualified where they have been involved in an insolvency event.

In a website update, the regulator noted the government’s changes included a new debt restructuring process and a simplified liquidation process for eligible incorporated small businesses through the appointment of a restructuring practitioner.

These changes also led to amendments to the Superannuation Industry (Supervision) Act, which commenced from 8 December 2021, and the creation of a new category of disqualified persons, which could impact SMSFs with a corporate trustee.

“This new category applies when a restructuring practitioner is appointed in an insolvency event. This will trigger the disqualification of a corporate trustee of a superannuation entity, including an SMSF, from managing a superannuation entity,” the ATO stated.

“If your SMSF has a corporate trustee, and a restructuring practitioner is appointed, the company will no longer be able to act as the corporate trustee as it is disqualified. You need to notify us of the disqualification as soon as practicable.”

To comply, SMSFs have been given six months from the date of the practitioner’s appointment to either restructure the fund to meet the definition of an SMSF, appoint a registrable superannuation entity licensee and become a small Australian Prudential Regulation Authority (APRA) fund or voluntarily wind up the SMSF and roll the benefits into an APRA-regulated fund.

“[SMSFs] may also have obligations to inform the Australian Securities and Investments Commission,” the regulator added.

Newly established SMSFs have been advised to first consider the eligibility of a corporate trustee before their appointment, with the ATO updating its website, relevant forms and the Australian business register to reflect the changes.

In a separate update, the ATO has reminded SMSFs that have received a finalised audit to lodge their SMSF annual return (SAR) by 28 February, highlighting it was more than an income tax return.

“It’s used to report super regulatory information, member contributions and pay the SMSF supervisory levy. The amount you pay for your supervisory levy is stated in the return,” it said.

“All operational funds need to lodge a SAR. Even if you’ve only been operational for part of the financial year, you’ll need to lodge a SAR.

“Remember, [the] transfer balance account report is a separate reporting obligation. You don’t need to include this information in your SAR.”

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