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ATO warns against inappropriate retirement planning schemes

ATO retirement planning schemes

Peter King, Zoe Griffiths and Kerri Reynolds discuss the ATO's Super Scheme Smart information pack with regard to retirement planning schemes.


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In response to retirement planning schemes which appear to be super smart (pun intended) or “too good to be true”, the Australian Taxation Office (ATO) published the Super Scheme Smart information pack yesterday to warn of schemes for self-managed superannuation funds (SMSFs) that are on the ATO’s radar.

Six specific schemes are outlined in the ATO’s information pack:

  • Using SMSFs to hold units in a unit trust or as joint venturers for property development, particularly where individuals provide non-arm’s length assistance to the project.
  • Individuals deliberately contributing assets to their SMSF which exceed their non-concessional contributions cap. 
  • Granting a life estate interest over commercial property to SMSFs ensuring rental income is diverted to the SMSF, however upon the SMSF trustee’s death full rights to the property return to the title holder.
  • Shareholders in a private company transferring their shares to a related SMSF so the SMSF can receive franked dividends, resulting in profits stripped from the company in a tax-free form.
  • SMSFs entering into limited recourse borrowing arrangements on non-arm’s length terms.
  • Individuals diverting income earned from personal services to their SMSF, with the income taxed concessionally or tax-exempt. 

Other arrangements for which the ATO are monitoring is the deliberate use of multiple SMSFs and the use of reserves to circumvent the balance cap restrictions limits.

The consequences from the above schemes include:

  • Distributions to the SMSFs may be non-arm’s length income
  • SMSFs may have: 
    • breached the sole purpose test which requires the SMSF to be set up for retirement purposes, rather than to seek tax concessions
    • artificially circumvented the in-house asset rules
    • breached the requirement to conduct dealings on an arm’s length basis
  • The scheme may attract application of the general anti-avoidance provision (Part IVA). 

This may result in the funds received by the SMSF being subject to higher tax rates and potential penalties being imposed. Additionally, the SMSF may no longer be compliant and the individual may be disqualified from being a trustee of their own super fund (including as trustee of other SMSFs).Advisers may potentially be caught by the promoter penalty laws, or where they are a tax agent, face the risk of referral to the Tax Practitioners Board.

The ATO’s message is clear – retirement planning is prudent and makes sense, but make sure it is within the relevant law and if you as a taxpayer or an adviser are in doubt, check it out and get a second opinion, or engage with the ATO.

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