We continue to see instances in which closely held groups seek to inappropriately divert profits to a related SMSF to access concessional tax rates.
Taxpayer Alert TA 2023/2 (the Alert) outlines our concerns with arrangements we've recently identified in which the profits of a property development enterprise are diverted to a related SMSF through the use of a special purpose vehicle owned by the SMSF.
The Alert provides an overview of the arrangements we're reviewing and outlines what to do if you've entered or are considering entering such arrangements. The Alert reinforces messages on our website about the significant tax and SISA regulatory implications of schemes which encourage taxpayers to channel money inappropriately through their SMSF.
The arrangements we're reviewing involve closely held groups (which include an SMSF) and non-arm’s length dealings between group members. Some taxpayers and advisers may be under the misapprehension that, because the SMSF itself is not directly involved in the non-arm’s length dealings, it is effective in obtaining concessional tax treatment. However, as the Alert makes clear, any non-arm’s length transaction between entities within the same closely held group can give rise to non-arm's length income for an SMSF in that same group.
If you're the trustee of an SMSF that's looking to participate in a property development, you should ensure the arrangement will meet your income tax and regulatory obligations.
For more information, read our SMSF Regulator’s Bulletin SMSFRB 2021/1 Self-managed superannuation funds and property development
Remember, if something seems too good to be true, then it probably is. You should always speak to your SMSF professional before entering any arrangement. Super Scheme Smart has more information on other arrangements and schemes that catch our attention.
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We've issued a Taxpayer Alert about arrangements involving SMSFs and property development projects.