However, he said not all criminal records disqualify a person from being an SMSF trustee.

“A person must be convicted of an offence of dishonest conduct whether committed in Australia or overseas. The Superannuation Industry (Supervision) Act 1993 does not define what offences constitute dishonest conduct but the ATO website provides fraud, theft, illegal activity or dealings as examples,” he said.

“Perjury, money laundering, bribery and corruption can also be considered offences of dishonest conduct.”

Hallinan continued that in SMSFs, honesty is not just the best policy – it’s the only policy as the SIS Act requires an SMSF trustee to act honestly in all matters concerning the fund.

“Honesty is so important as the SMSF trustee will be responsible for handling the money of the members in the SMSF and ensuring the fund's compliance with the SIS Act,” he said.

“If a person has been convicted of an offence of dishonest conduct, they cannot be expected to act in the best financial interests of all the members of the SMSF and ensure that their money and other assets are kept separate from the money and other assets of the fund.”

He added, however, that if a person was convicted of an offence of dishonest conduct, there is an exception that can be applied.

“They can apply for a waiver of disqualified status if the offence is not a serious dishonest conduct, such as if the penalty imposed for the offence was not either a term of imprisonment for more than two years or fine of more than 120 penalty units,” he said.

“If the penalty imposed for the offence is imprisonment of more than two years but the person spends less than two years in prison, they are still disqualified to act as SMSF trustee.”

He added that the application for exemption should be made within 14 days of the conviction but the ATO will accept late applications if they can explain the reason for the delay.

“Trustees then need to wait for the ATO’s acceptance of the waiver of disqualified status before they can continue to be an SMSF trustee,” he said.

“If found to be disqualified to act as an SMSF trustee, they must resign as SMSF trustee immediately. Consequently, their resignation as SMSF trustee will mean the SMSF ceases to comply with the SIS Act.”

There are a number of options for the disqualified person to ensure the fund remains compliant, including staying in the fund.

“As the disqualified person can no longer act as trustee, they can appoint a registrable superannuation entity licensee as trustee and convert the SMSF into a small APRA fund,” Hallinan said.

“By converting the fund, they still keep their membership in it.”

Another option is to leave the SMSF and if the fund has more than one member, they can rollover their benefits to a complying super fund such as a retail super fund or withdraw their benefits as a lump sum if they are eligible.

“These are all possible if the SMSF has enough cash to pay their benefits. By leaving the SMSF, the other members can continue managing the fund,” Hallinan said.

Finally, the trustee can wind up the SMSF. If the fund is a single-member super fund, they can wind it up by rolling over their benefits to another super fund or withdrawing their benefits as a lump sum if they are eligible.

“Even if the SMSF has other members, the fund will also need to be wound up if keeping it will not make any practical sense,” Hallinan added.

“If an SMSF trustee foresees conviction of an offence and is unsure they are disqualified to act, they should seek professional assistance as early as possible to make sure they do not contravene the provisions of the SIS Act.”