Advisers warned about SIS provision

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An SMSF law firm is alerting advisers to a little known SIS provision in light of a recent Administrative Appeals Tribunal decision.

DBA Lawyers is encouraging advisers communicate with their clients the importance of revealing any offences that result in a conviction of dishonest conduct.

The warnings come after the director of a company that was a trustee of a superannuation fund was convicted of making a false statement pursuant to which he sought a financial advantage.

This led to him being classified as a disqualified person under the SIS Act, which meant he would not be able to be a future trustee of any SMSF fund.

Two years later the man applied to have his status as a disqualified person waived, however he was informed by the commissioner of taxation that there is only a 14-day time frame to apply for the waiver after a conviction.

After that period, “exceptional circumstances” must be proven to reverse the disqualification.

In his counter argument, the man claimed he had relied on professional advice provided to him by his accountant, who at no point told him about the 14 day limitation period.

But his circumstances weren’t proved to be “exceptional”, and his disqualification was upheld.

DBA lawyer David Oon told Wealth Professional that even though there are some circumstances where a person has clearly engaged in dishonest conduct, the definition itself can be a grey area.

Although unlikely, potentially a person who once dodged paying a bus ticket could end up in a similar sticky situation, he said.

And because many don’t realise the extent of the disqualified person provisions in the SIS Act, a person could inadvertently act as an SMSF trustee while disqualified.

Interestingly, murder is not dishonest conduct and would not lead to a disqualification.

Oon suggests that advisers regularly ask clients questions about whether they are aware of any offence at any point in their life that could have led to them being convicted with dishonest conduct.

This includes a consideration of whether any future successor trustees such as spouse or children are potentially disqualified persons.

“Essentially, it could be something like a checklist when setting up SMSFs for people,” he said. “I don’t believe it’s something that happens every day, but it is there.”

Communicating these provisions to clients ensures that as well as providing them quality service, advisers are protecting themselves from the potential risk of litigation due to claims of inaccurate or negligent advice.

“You just don’t want to be that guy, and you don’t want to be that guy’s adviser that gets blamed and or sued,” Oon said.

And if a client does get caught up in a dishonest conduct case, it’s important that they are aware of the 14-day waiver rule.

Any SMSF trustee operating with the knowledge that they have been convicted of dishonest conduct and are a disqualified person could be hit with huge fines and/or jail.

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  • Peter Grace on 19/05/2014 6:14:52 PM

    So if an event occurred 20 years ago an individual is expected to know that they might be a trustee in the future and apply for the waiver at that time. What a ridiculous bit of drafting. It works if you are a trustee already but not other wise.

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