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Plans to channel money or assets into an SMSF to pay less tax could result in the loss of entire savings, says the Tax Office.
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ATO warns of early release schemes targeting SMSFs
12 July 2023
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The ATO has warned the public of schemes aiming to tempt SMSF trustees into illegal early release arrangements or inappropriately channelling money or assets into an SMSF to pay less tax.
Individuals have been told to be wary of schemes designed to encourage people to set up an SMSF and use their super benefits for personal purposes.
The ATO reiterated SMSFs aimed to provide retirement benefits to its members, with it generally being illegal for anyone to benefit from the fund outside of this arrangement.
Consequences for the illegal access or use of an SMSF could result in the loss of some or all of the individual’s retirement savings and the possibility of being disqualified as a trustee of their SMSF and resulting in their fund being wound up.
The Tax Office warned individuals to be vigilant when a scheme seemed too good to be true and avoid putting their retirement savings at risk, but instead seek independent advice from an adviser with no connection to the scheme before committing to any arrangements.
The ATO said some common features the schemes have are:
- Artificial or contrived arrangements with complex structures around an existing or new SMSF
- Involve seemingly unnecessary steps or transactions
- Designed to give the taxpayer minimal or zero tax or even a tax refund
- Aim to bring forward a tax benefit
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One example of a scheme looking to exploit SMSFs is an SMSF investing directly or indirectly in property development, which the ATO said requires extreme care.
It said some arrangements can result in significant income tax and superannuation regulatory risks and can include the application of the NALI provisions and breaches of regulatory rules about related party transactions.
Another scheme the ATO warned trustees of was non-concessional cap manipulation where SMSF members deliberately exceed their non-concessional contributions cap to manipulate the taxable and non-taxable components of their superannuation account balances.
The ATO also cautioned SMSF holders against dividend stripping – where shareholders in a private company transfer ownership of their shares to a related SMSF – so the firm can pay franked dividends to the SMSF and strip profits from the company in a tax-free or concessionally taxed form.
The Tax Office advised SMSF trustees that if they are approached by individuals that have tried to promote such schemes, trustees should check the ASIC financial register to ensure they have a financial license.
It also said if an individual is concerned they have been caught up in a scheme to contact the ATO and request assistance.
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