Dishonest conduct

November 1, 2013

Many do not realise the extent of the disqualified person provisions in the Superannuation Industry (Supervision) Act 1993 (Cth) (‘SISA’). This can result in a person inadvertently acting as trustees of self managed superannuation funds (‘SMSF’) while disqualified. Doing so exposes these trustees to significant penalties. We explore some of the nuances of the disqualified person provisions and some practical steps to ensure advisers are aware of the risks and ensure their clients do not act as SMSF trustees while disqualified.

Certain persons disqualified from acting as trustees

The SISA prohibits certain ‘disqualified’ persons from acting as trustees of SMSFs. We consider an individual who has been convicted of an offence involving dishonest conduct and is therefore disqualified from being a trustee of an SMSF under s 120 of the SISA.

This prohibition also precludes such individuals from acting as directors of corporate trustees of SMSFs. For simplicity, I will simply refer to a trustee from now on which also includes a reference to a director of a corporate trustee.

What does ‘dishonest’ mean?

The term ‘dishonest’ is not defined in the SISA and therefore takes on its ordinary meaning. The Criminal Code Act 1995 (Cth) provides an interpretation, albeit in a different context, defining dishonesty by reference to the ‘standards of ordinary people’.

The courts have elaborated on this meaning in a number of criminal cases. In, R v Salvo [1980] VR 401) the word was generally found to be actions undertaken ‘discreditably, as being at variance with straightforward or honourable dealing’. In a different context, behaviour was considered to be dishonest ‘if it is done in the knowledge that it will produce adverse consequences for others’ (R v Bonollo [1981] VR 633).

In the cases relating to superannuation, there has been little commentary, other than a recognition that offences involving theft or deception for personal gain will almost inevitably be dishonest (refer to N2000867 v Australian Prudential Regulation Authority [2001] AATA 979; AAT Case 60/96 96 ATC 560; VBS v Commissioner of Taxation [2005] AATA 1303; VCA v Australian Prudential Regulation Authority [2008] AATA 580).

Shoplifting would clearly fall within the context of dishonest conduct. Indeed, the explanatory memorandum to the SISA in respect of s 120 includes an example that confirms someone convicted of a minor shoplifting offence some 20 years ago is disqualified.

However, there are obviously a whole range of offences that need to be considered that may fall within the realm of dishonest conduct and, if so, the person would be disqualified. The difficulty in practice is to determine whether some offences fall within the realm of dishonesty without undertaking considerable and in depth legal research; especially as some offences may fall within a grey or uncertain area.


An adviser is called by a concerned parent who asks whether her child who has just been caught on public transport without a valid ticket should do anything other than pay the $150 cost of the fine or fight it in court? The adviser then learns that this parent has only recently undertaken their estate planning on the basis that their two children would one day take control of the family SMSF following the death of their parents. If on close analysis of the legislation, the offence involved one where the child had intent to ride on public transport without a ticket, then that child may be forever precluded from becoming an SMSF member. On the other hand, the legislation may require intent and therefore would not result in disqualification. However, this analysis on its own may give rise to a substantial legal cost to undertake hours and hours of research by an experienced lawyer costing thousands of dollars. Many parents therefore simply pay such fines without thinking any further.

Accordingly, trustees should be alert to the range of possible offences which may on their face not appear to disqualify a person but on a detailed analysis of the law may have the potential to result in disqualification. For instance, drug related offences may not necessarily result in disqualification but being a drug dealer is generally considered to be ‘discreditable, at variance with straightforward or honourable dealing’ per Salvo’s case above. Research into the nature and type of conviction may result in certain drug related offences leading to disqualification. Interestingly, however, someone who commits murder is not disqualified.

As you will appreciate from this brief analysis, the law here is complex and extremely difficult to administer in practice. Indeed, this area of the law needs reforming in order to clarify what falls within the (disqualification) net. SMSF trustees should not be put at risk by offences which are not within a prescribed ‘net’ of convictions.


There is a real risk of significant penalties for a disqualified person acting as a trustee of an SMSF. Section 126K of the SISA provides several penalties for a disqualified individual acting as trustee of an SMSF. Individuals who are or become a disqualified person and act as trustee of an SMSF face criminal and civil penalties of two years in prison or a $10,200 penalty. Further, trustees of SMSFs who become a disqualified person must immediately inform the ATO or face a penalty of $8,500.

Thus, a detailed investigation should not be deferred or swept under the carpet thinking the risk will simply fade away in time. This is also an offence involving strict liability (ie, no intention to contravene needs to be proved).

Past and overseas offences

In particular, the SISA extends the definition to anyone convicted at any time under a law of the Commonwealth, a State, a Territory, or a foreign country. As such, there is potential that no matter where a conviction was recorded, or when it was recorded (including before the SISA came into force in late 1992), the conviction will be relevant to determining whether the person is a disqualified person.

Spent convictions

Spent convictions are available under certain state, and federal and overseas legislation that generally prohibit the disclosure of offences in some circumstances. In some cases, a conviction that is more than 10 years old may no longer require disclosure. However, the SISA expressly excludes the law on spent convictions, and accordingly, spent convictions are still relevant for determining whether a person is a disqualified. One tribunal decision involved an overseas equivalent of a spent conviction that was held to be covered by the SISA (see the discussion of AAT Case 60/96 below).

Case study — AAT Case 60/96

In AAT Case 60/96 96 ATC 560 the Administrative Appeals Tribunal affirmed the disqualification of a trustee who had been convicted and paid a monetary fine in the United Kingdom in 1969 due to fraudulent insurance claims. It was argued that the convictions were covered by the Rehabilitation of Offenders Act 1974 (UK) that operates in, broadly, a similar fashion to spent convictions.

The tribunal confirmed offences involving dishonest conduct committed prior to SISA and overseas were otherwise covered even though the offence was a spent conviction under UK legislation. This was despite the person being only 21 years old at the time, receiving minor punishment and having had an exemplary record over decades as a successful investment manager and chairman of managed funds.

Waiver of status as a disqualified person

The SISA provides limited scope to apply for a waiver of disqualified person status. An application can be made to the ATO or the Federal Court. Different requirements apply to these applications. For example, very strict timeframes are placed on applications to the ATO and the offence can not be one of ‘serious’ dishonest conduct being one that can result in greater than two years imprisonment.

While the ATO may overlook certain minor offences it is unlikely to look favourably on anyone convicted of fraudulent social security/Centrelink, tax and similar claims. 
The ability to apply to the Federal Court is less restrained though brings its own considerations as to cost and the likelihood of success.

This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional.

By Daniel Butler (, Director DBA Lawyers
27 October 2013

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