Posted on 3 March '16 by , under General News.
The SMSF sector in Australia has experienced enormous growth over the past decade, and many of the funds set up are made up of two members, usually a husband and wife or de facto couple.
While having more control over your superannuation savings has become a popular option amongst couples, members need to be aware of the many rules that govern the establishment and continuation of SMSFs, such as what to do when one or both members become bankrupt.
The bankruptcy of a member can have significant ramifications for the other member of the SMSF, as well as the bankrupt.
When a member of an SMSF enters bankruptcy, the ATO provides a six-month ‘grace period’ before the SMSF is ceased, to allow a restructure of the SMSF so that it either makes the essential conditions required or can be rolled over into an industry fund.
During the six-month grace period, the ATO requires:
the bankrupt to remove themselves as trustee as soon as possible
the bankrupt to inform the ATO in writing using Form NAT 3036
to be notified within 28 days if there is a change in trustee
If one member of an SMSF enters bankruptcy, they must resign as trustee as soon as possible. The other member will need to remove the bankrupt’s property from the SMSF before the grace period is over, as well as:
sell any real estate and halve the proceeds
transfer the bankrupt’s share of the liquid assets to a managed fund
consider whether they want to remain as a single member SMSF, or roll over their entitlements to a managed fund.
If both members enter bankruptcy, they must sell all assets for the market value available at the time, and then transfer all of the liquid assets to a managed fund.