“You are breaching the law if you’re an individual trustee or director of a corporate trustee while you are disqualified, and as you know if you’re an SMSF, all trustees and directors have to be members so you can’t be a member of the fund either,” Ms Formica said, speaking at the Heffron Super Intensive Day.

For those that don’t have much money sitting in their fund and want to wind it up, Ms Formica said they might not care too much about the disqualification.

“I’ve had people come to me and say that they don’t really care about the disqualification because I should never have had an SMSF in the first place,” she said.

“What I tend to point out at that time is that disqualification goes in the government gazette. The ATO has a register of disqualifications and so there could be potential career impacts for people.”

For SMSF professionals in particular, she said, if they are disqualified then there is the potential for them to lose their tax agent registration or their ability to be a financial planner.

“We’ve had particular situations where individuals have been very worried about the disqualification because they were actually studying at that time and were intending to get a government job, so anything like government jobs, government contracts, any career position that involves managing money is something that could be impacted,” she warned.

With six-member funds back on the government agenda, Cooper Grace Ward Lawyers partner Scott Hay-Bartlem said this is also an important consideration for those parents who are thinking about adding children to their fund.

Speaking in the same session, Mr Hay-Bartlem said he has seen examples where the parents have created a compliance issue in the fund and they’ve had adult children in the fund who weren’t involved but were facing the same threat of disqualification.

The ATO in the [recent] PS LA, he explained, makes it clear that being a passive trustee or director is not good enough, you’re still liable, “so if they’re fighting with the ATO about the breach and about the penalties, they will want to disqualify all of the trustees”.

“So, [in this case we encountered], this involved the 19-year-old and even though they only had $5,000 in the fund and weren’t involved in the breach, we still had to fight to avoid him getting disqualified,” he said.

“So, getting the kids into the fund may seem exciting, but they’re going to be liable if things go wrong. It can be the same sort of thing where you have aged parents in the fund. But for a 19-year-old becoming disqualified for those types of issues, there could be huge long-term impacts.”

In terms of dealing with a potential disqualification, Mr Hay-Bartlem recommended getting on the front foot early with the ATO and tackling the issues, rather than waiting for a decision.

“You should be proactively making submissions, and if you’re given a positions paper, don’t ignore it. Get engaged early,” he said.

“In the case of the 19-year old, we pointed out that he wasn’t involved and we did get the ATO to agree not to disqualify him and we managed to roll him out.”