Super Scheme Smart: Individuals
Individual taxpayers who adopt an illegal tax scheme identified by us may attract severe penalties under tax laws and risk losing their nest egg. Individuals could also lose their rights as a trustee to manage and operate the self-managed super fund (SMSF), forcing some SMSFs to be closed.
Retirement planning makes good sense provided it is carried out within the tax and superannuation laws. Currently we are seeing a number of schemes targeting Australians planning for their retirement. These encourage individuals to channel money inappropriately through their SMSF.
We encourage you to be super scheme smart and not be tempted by 'too good to be true' tax avoidance schemes. Don't risk your retirement savings.
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Schemes that attract our attention
We're concerned with the following superannuation schemes:
- Related-party property development ventures. Whilst an SMSF can invest directly or indirectly in property development ventures, extreme care must be taken. Some 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.
For more information refer to SMSF Regulator's Bulletin SMSFRB 2020/1 – Self-managed superannuation funds and property development.
- Non-concessional cap manipulation – 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 superannuation account balances.
- 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.
- 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.
- SMSF trustee's undertaking limited recourse borrowing arrangements (LRBA) that are not consistent 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 is concessionally taxed or treated as exempt from tax.
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 effect on 1 July 2017.
These include:
- Improper use of multiple SMSFs. Having multiple SMSF's ordinarily do not raise compliance issues however the establishment of additional SMSFs intended to manipulate tax outcomes would. For example, switching each of the respective funds between accumulation and retirement phase.
- Inappropriate use of reserves. Whilst many existing reserves in SMSFs arose legitimately from legacy pensions that are no longer available, we consider that there are very limited appropriate circumstances where new reserves would be established and maintained in SMSFs. Structures using reserves designed to bypass super balance and transfer balance cap measures 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.
How to know if you've been approached by a promoter
Make sure you are receiving ethical professional advice when undertaking retirement planning. Preferably seek a second opinion from a trusted and reputable expert, especially if you are in any doubt.
To help you understand more, we have created an information pack. It includes:
Where to get help
We are here to help you. If you think you’ve been approached by a promoter or caught up in a scheme, please contact us early and we will work with you towards a resolution:
- phone 1800 060 062
- complete a tip-off form. The form is also available in the contact us section of the ATO app.
Related page
There are a number of schemes targeting individuals planning for their retirement, which encourage you to send money inappropriately through your self-managed super fund (SMSF).