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  • Super Scheme Smart: Individuals information pack

    Super Scheme Smart is designed to help you understand the features and risks of retirement planning schemes and what you should do if you believe you are involved.

    In this information pack you’ll find:

    You can also download this information as a PDF – Super Scheme Smart: Individuals information pack (PDF, 1.66MB)This link will download a file.

    Retirement planning schemes

    There are a significant number of people approaching retirement who are looking at the best ways to maximise their retirement assets and income. We have around eight million people in Australia who are 50 years old and over.

    Retirement planning is every taxpayer's right and it makes good sense to save for your retirement in a tax-effective manner, as long as you do it within the tax and superannuation laws.

    Unfortunately, there are some people who want to target those approaching retirement, with schemes designed solely to help retirees and prospective retirees to avoid paying tax by channelling income through a self-managed super fund (SMSF).

    Currently there are a number of schemes targeting Australians planning for retirement, which have been designed by their promoters to avoid tax; we refer to these as ‘retirement planning schemes’.

    If you are looking for the best way to maximise your retirement assets, at first glance these schemes might seem like a good choice. It is important to remember, however, that these schemes could end up costing you more and may put your retirement savings at risk.

    While we do our best to find and shut down dodgy schemes, the best approach is for us to work together. It’s important for you to know what to look out for if you are approached by a promoter so you can steer clear.

    Retirement planning schemes explained

    Read on to find out how to identify and avoid retirement planning schemes:

    What is a retirement planning scheme?

    Retirement planning schemes are designed to help you avoid paying tax on the income that you earn from your assets, often in an illegal manner. While these schemes may seem like a good choice in seeking to maximise your retirement assets, they can put your retirement nest egg at risk.

    Are there any retirement planning schemes on the market at the moment?

    There are a number of schemes targeted towards individuals with SMSFs. This is because of the relatively high level of control and autonomy that SMSF members have in the way that their retirement savings are invested, subject to applicable tax and super laws. Some examples include the following:

    • Some arrangements involving SMSFs and related-party property development ventures. Whilst there is no specific prohibition preventing an SMSF investing directly or indirectly in property development ventures, extreme care must be taken. These arrangements can give rise to significant income tax and superannuation regulatory risks. This includes the potential application of the non-arm's length income (NALI) provisions and breaches of regulatory rules about related party transactions.
    • Refund of excess non-concessional contributions to reduce taxable components – where individuals (including SMSF members) deliberately exceed their non-concessional contributions cap with a view to manipulating the taxable and non-taxable components of their super account balances.
    • Granting legal life interest over commercial property to SMSFs – where an SMSF member or other related entity grants a legal life interest over a commercial property to an SMSF, resulting in rental income being diverted to the SMSF where it is taxed at a lower rate without full ownership of the property ever transferring to the SMSF.
    • Dividend stripping – where the shareholders in a private company transfer ownership of their shares to a related SMSF so that the company can pay franked dividends to the SMSF, the purpose being to strip profits from the company in a tax-free form.
    • Non-arm’s length limited recourse borrowing arrangements – when an SMSF trustee undertakes limited recourse borrowing arrangements (LRBA) established or maintained on terms that are not consistent with an 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 where it is concessionally taxed or treated as exempt from tax.
    • Liquidating an SMSF – where the controllers of an SMSF seek to roll over fund balances into another fund, before winding up the SMSF to avoid paying tax liabilities.

    Other arrangements we are monitoring relate to the new super caps and restrictions that apply as a result of the super changes that came into operation on 1 July 2017. These include:

    • The deliberate use of multiple SMSFs to manipulate tax outcomes. While the establishment of multiple SMSFs by itself does not give rise to compliance issues, we will examine the circumstances of those cases where it appears that the establishment of another SMSF has been a precursor to subsequent behaviour intended to manipulate tax outcomes. For example, switching each of the respective funds between accumulation and retirement phase.
    • The use of reserves to circumvent the restrictions and limits which apply as a result of the total super balance and transfer balance cap measures. Whilst many of the existing reserves in SMSFs have arisen legitimately in the context of legacy pensions that are no longer available, the ATO does consider there are very limited circumstances where it is appropriate for new reserves to be established and maintained in SMSFs. The establishment or maintenance of reserves by SMSFs beyond these very limited circumstances may indicate an inappropriate use as part of a broader strategy to circumvent the new limits and restrictions under the recent super changes. These structures will attract our scrutiny.

    For more information, refer to SMSF Regulator’s Bulletin SMSFRB 2018/1 The use of reserves by self-managed superannuation funds.

    What is the ATO doing about it?

    We're having considerable success in identifying and closing down illegal schemes, and part of this includes warning people about retirement planning schemes.

    We seek to encourage compliance in a co-operative way and have introduced Super Scheme Smart, an initiative to help inform you about the dangers of risky retirement planning schemes. This will give you guidance on how to identify these types of schemes and where to get help.

    What should I look out for?

    Retirement planning schemes have some common features. They usually:

    • are artificially contrived and complex, and it is often SMSF members who are targeted and encouraged to use their SMSF as part of the scheme
    • involve a lot of paper shuffling
    • are designed to leave the taxpayer with minimal or zero tax, or even a tax refund
    • aim to give a present-day tax benefit by adopting the arrangement
    • sound too 'good to be true', if this is the case they probably are.

    Who is most at risk?

    Anyone can fall prey to a retirement planning scheme, and typically those people moving closer to retirement are most at risk. This can mean anyone looking to put significant amounts of money into superannuation, particularly those over 50 who are:

    • SMSF trustees
    • self-funded retirees
    • small business owners
    • professional service providers
    • company directors
    • individuals involved in property investment.

    Who would approach me about a retirement planning scheme?

    Promoters are people who design schemes whose intent is solely for the purpose of helping others intentionally avoid tax. Anyone can be a promoter and promoters don’t just work in the financial services industry. Promoters may approach you directly, and they also target financial planners and accountants in order to extend their reach through to you.

    What could happen to me if I’m involved in a retirement planning scheme?

    A: If you’re involved in an illegal scheme identified by us, you may incur severe penalties under the tax and super laws; you risk losing your retirement nest egg and also your rights as a trustee to manage and operate an SMSF. We don’t want to see this happen and encourage people to seek a second opinion as we are here to help. Anyone with concerns can call us – early intervention is best for everyone.

    If I suspect I’ve been approached about or involved in a retirement planning scheme, what should I do?

    A: When undertaking retirement planning, make sure you seek ethical professional advice. If you’ve been presented with something that sounds like a tax avoidance scheme, seek a second opinion from a trusted and reputable expert (for example another tax agent, accountant or SMSF auditor).

    When informed early, we are in a better position to provide guidance, minimise penalties, and allow taxpayers involved in retirement planning schemes to retain their capacity to manage their SMSF.

    Most importantly, we want to help you protect your nest egg. If you have any questions or concerns, contact us:

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      Last modified: 29 Jul 2021QC 49661