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  • Super Scheme Smart: Individuals

    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 self-managed super fund (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.

    Individual taxpayers who adopt an illegal 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 their SMSF, forcing some to close.

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    Schemes we’re currently worried about

    We're concerned with the following superannuation schemes:

    • 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 superannuation 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.

    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 further 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.

    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:

    Super Scheme Smart: if in doubt, check it out.

    Last modified: 03 May 2018QC 49659