The Australian Taxation Office (ATO) has published information on schemes it is monitoring that encourage Australians to inappropriately channel money through their self-managed superannuation fund (SMSF).
The organisation said these areas were being monitored as they were being increasingly used by promoters as a way to maximise retirement assets and income.
Schemes which were designed to provide an unfair tax advantage were being shut down by the ATO.
The schemes were:
- Related-party property development ventures: While SMSFs could invest directly or indirectly in property development ventures, the ATO said ‘extreme care’ should be taken. Some arrangements could give rise to significant income tax and super regulatory risks including the potential application of the non-arm’s length income (NALI) provisions and breaches of regulatory rules about related-party transactions;
- Non-concessional cap manipulation: Where individuals (including SMSF members) deliberately exceeded their non-concessional contributions cap with a view to manipulating the taxable and non-taxable components of their super account balances;
- Dividend stripping: Where the shareholders in a private company transfer ownership of their shares to a related SMSF so that the company could pay franked dividends to the SMSF, the purpose being to strip profits from the company in a tax-free form;
- Limited recourse borrowing arrangements: SMSF trustee’s undertaking LRBA’s that were inconsistent with a genuine arm’s length dealing;
- Personal services income: Where an individual (with an SMSF often in pension phase) diverts income earned from personal services to the SMSF so it was concessionally taxed or treated as exempt from tax;
- Asset protection schemes: Arrangements that claimed to protect SMSF assets from creditors by mortgaging them to an asset protection trust (commonly referred to as a ‘Vestey Trust’) present a compliance risk;
- Granting legal life interest over commercial property to SMSFs by an SMSF member or other related entity to divert rental income so that it is taxed at a lower rate without full ownership of the property ever transferring to the SMSF.
“We encourage all advisers in wealth management and retirement planning to think carefully about whether a retirement planning scheme is tax and regulatory compliant.
“Seek a second opinion from a professional colleague or another trusted practising expert if you think you have been approached by a promoter, or inadvertently involved a client in a scheme,” the ATO said.
