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Case study scenario

A case study covering the impacts on an SMSF if a trustee is disqualified.

Last updated 13 October 2016

Sally is a member and a trustee of the ABC SMSF with two others who are trustees and members. Sally has recently been involved in illegal activities and convicted of an offence involving dishonesty. Not being aware of her obligations as a trustee, she continues her trusteeship with the SMSF.

What happens now?

Sally’s conviction means that she is a disqualified person and she must cease being or acting as a trustee immediately.

The remaining trustees must notify us in the approved form of the change in trustees within 28 days.

When Sally resigns her trusteeship, she remains a member of ABC until the remaining trustees cease her membership.

Generally, to be an SMSF, all members of the funds must be trustees and all trustees must be members. However even after Sally resigns, ABC will continue to meet the definition of an SMSF for up to six months. This time allows the remaining trustees to take the necessary action to meet their obligations to comply with the law. They have the following options.

  • Roll-over or transfer Sally’s superannuation interest into another complying fund, or if she meets a condition of release pay it to her as a benefit and cease her membership of the fund. After she ceases being a member, ABC will have only two members who are also the only two trustees and will continue to meet the definition of an SMSF.
  • Appoint a registrable superannuation entity (RSE) licensee as trustee, that is, become a small APRA fund (the fund will be eligible for the investment and other concessions available to funds with fewer than five members and Sally can remain a member).
  • Wind-up the SMSF.

Because Sally was disqualified for being convicted of dishonest conduct, she may be able to apply to us for a waiver if she wants to continue acting as a trustee. She doesn’t have to resign until we make our decision (and then only if we don’t give a waiver) if she applies within 14 days of her conviction. If we receive the request more than 14 days after the conviction, Sally must resign immediately.


Sally will commit an offence if she continues to be or act as a trustee when she knows she is disqualified. Penalties including fines and imprisonment can apply.

If the remaining trustees don't take any action after Sally resigns ABC will become an RSE. Trustees of an RSE commit an offence if they don't have an RSE license.

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