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  • Super Scheme Smart: Intermediaries

    Superannuation schemes that concern us and what intermediaries need to know to protect their clients.

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    An increasing number of people are approaching retirement and looking at ways to maximise their retirement assets and income. However, some retirement planning schemes are actually too good to be true.

    We’re currently focusing on schemes that encourage Australians to inappropriately channel money through their self-managed super fund (SMSF). These are increasingly being used by promoters.

    We’re having success in identifying tax avoidance schemes, and are encouraging compliance in a co-operative way. We're also closing down schemes that are designed to provide an unfair tax advantage.

    Schemes that attract our attention

    We’re concerned with the following super schemes:

    • Related-party property development ventures – While SMSFs can invest directly or indirectly in property development ventures, extreme care must be taken. Some arrangements can give rise to significant income tax and super 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 2020/1Self-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 super 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.
    • Asset protection schemes – Arrangements that claim 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.
      For more information refer to SMSFs and schemes involving asset protection.

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

    • Improper use of multiple SMSFs to manipulate tax outcomes – Having multiple SMSFs ordinarily does not raise compliance issues. However, establishing additional SMSFs to manipulate tax outcomes would. For example, switching each of the respective funds between accumulation and retirement phase.
    • Inappropriate use of reserves – While many existing reserves in SMSFs arose legitimately from legacy pensions that are no longer available, we consider 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 2018/1The use of reserves by self-managed superannuation funds.

    How you can help

    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.

    To help you understand more, we have created an Information pack.

    Most importantly, we want to help the advisers of individual taxpayers to protect their nest eggs. You can contact us by:

    Last modified: 10 Jan 2023QC 49660