NEWS LETTER SPRING 2009
10 11 2009
This publication produced by Foremans Business Advisors specifically focusing on insolvency issues relevant to accountancy practices and their clients. In this edition we look at bankruptcy issues relating to Self Managed Superannuation Funds, After Acquired Property (in this instance interest in deceased estates and Gold Lotto wins) and Family Law (including the “Pre-Nup”).
BANKRUPTCY AND THE SELF MANAGED SUPER FUND
Ms Julie Steed of Australian Executor Trustees Limited, recently identified some significant matters relating to bankruptcy and Self Managed Super Funds (“SMSF”). If the trustee of a SMSF was to be declared bankrupt then the individual is not eligible to be a trustee of a SMSF which also means they are unable to be a member of that fund whilst it is a SMSF.
That person is required to notify the ATO immediately and make alternative arrangements for their SMSF within six (6) months of their bankruptcy. Otherwise, in addition to possible civil and criminal penalties, they risk their SMSF being made a non complying fund and having the income and assets of that fund taxed at 45%.
Ms Steed advises that the option of rolling over their SMSF to a retail, corporate or industry fund can create difficulties since the roll over to a large fund will trigger a CGT event. If capital gains exist, tax will need to be paid. In addition, the fund will lose the ability to carry forward any capital losses. When discharged from bankruptcy, if clients then choose to roll their benefit in the large fund back to a SMSF it will also trigger a CGT event.
Alternatively, clients may choose to change the status of their SMSF to that of a Small APRA Fund. Ms Steed advises that the appointment of a new trustee in these circumstances will not trigger a CGT event therefore existing cost bases and any CGT losses are able to be carried forward. Upon discharge from bankruptcy, any change of trustee from a Small APRA Fund back to a SMSF is also not a CGT event.
A BANKRUPT'S GOLD LOTTO WIN IS THE TRUSTEE'S WIN
As after acquired property vests in a bankrupt’s Trustee, if an undischarged bankrupt was to win $1 million in Gold Lotto, that money would need to be paid to the Trustee to satisfy the debts within the bankruptcy. Only the surplus, if any, after paying all bankruptcy debts, would be returned to the bankrupt.
The after acquired property rules similarly apply to money or property left to an undischarged bankrupt in the will of a deceased person. If you have any clients that may be facing bankruptcy then the issue of whether they are a beneficiary in any person’s will should be raised and addressed.
THE PRE-NUP AND THE BANKRUPTCY TRUSTEE
Binding Financial Agreements (“BFA’s”), between spouses can be made before, during and after marriage.
Both sections 120 and 121 of The Bankruptcy Act allow for a Trustee in Bankruptcy to apply to the Court to set aside a transfer of property under a BFA. Since 2005, transfers under a “financial agreement” have been excluded from the exemptions under section 120(2)(b). The exemptions relating to “maintenance agreements” remain. Section 120 deals with undervalued transactions.
Recently the Court in Combis, Trustee of the Property of Peter Jensen (Bankrupt) v Jensen [2009] FCA 778
allowed for such a transfer to be challenged under Section 121 of The Bankruptcy Act. This section relates to transfers to defeat creditors.
Even if a Trustee is successful under section 120 and/or 121 in recovering property from the non-bankrupt spouse in the first instance, that non-bankrupt spouse may still be able to then make a claim on that same property under section 79 of the Family Law Act despite it having vested in the Trustee in Bankruptcy.
If you have any questions concerning the above topics or about insolvency matters generlly, please contact:-
Carins - Call Todd Kelly or Peter Morris to arrange a free consultation on 07 4052 1655
Melbourne - Call Dean McVeigh, Craig Bolwell or Vincent Savage to arrange a free consultation on 03 9521 6662