Auditor’s perspective: A shift in the ATO’s approach to SMSF trustee disqualification

As auditors, we are seeing a notable change in the regulatory environment for self-managed superannuation funds (SMSFs). The Australian Taxation Office (ATO) has increasingly moved from an educational stance toward a stricter enforcement approach, particularly regarding trustee disqualification under the Superannuation Industry Supervision Act (SIS Act).

For many years following its role as regulator from 2000, the ATO tended to reserve disqualification for extreme breaches. However, recent trends indicate a rise in cases where trustees are disqualified for breaches of investment restrictions, areas that have historically drawn less scrutiny.

Disqualification triggers

From an audit standpoint, it is crucial to understand the main grounds for trustee disqualification. These may include, but are not limited to:

• Offences involving dishonesty are subject to a civil penalty under the SIS Act.
• Being an undischarged bankrupt or insolvent under administration.
• Regulatory disqualification under Section 126 of the SIS Act.

While trustees may apply for a waiver of disqualification in some circumstances, this usually requires court involvement, particularly in cases linked to bankruptcy. 

Case Study: Re Orel [2025] FCA 59

The Orel case provides a practical illustration. Here, the director of a construction company was declared bankrupt after liquidation during COVID-19 disruptions. This automatically triggered his disqualification under both the Corporations Act and the SIS Act.

Despite this, the Federal Court granted him leave to manage his SMSF’s corporate trustee alongside his wife, the only other member of the fund. The court assessed his compliance history, cooperation with regulators, and the fund’s strong compliance record. Ultimately, it was determined that allowing him to remain in his role presented minimal risk to the public or to fund governance.

Lessons for trustees and auditors

From an auditor’s perspective, the key takeaway is clear: trustee disqualification is no longer limited to extreme misconduct. The ATO is paying closer attention to compliance with investment restrictions, and breaches that may once have resulted in a warning can now lead to disqualification.

When auditing SMSFs, we do take into consideration the following:

• The fund’s compliance track record.
• The trustee’s character and conduct since any breach.
• The potential risk of future non-compliance.

The Orel case highlights that while disqualification is serious, courts will weigh both past actions and the likelihood of future compliance. For trustees, this reinforces the importance of maintaining robust governance and compliance practices. For auditors, it underlines our critical role in identifying risks early and guiding trustees toward corrective action before regulatory consequences escalate.

We’re here to help

If you believe our specialised superannuation team can help you, please contact us on 03 8508 7800 or submit your details here, and we’ll contact you.

This information is general in nature and is provided by Partners Wealth Group. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.