The ATO has its sight set on individuals participating in an increasing number of aggressive tax avoidance and retirement planning schemes in self-managed superannuation funds (SMSF).
The Tax Office has launched Super Scheme Smart, an initiative designed to help inform individuals and advisers about illegal retirement planning schemes. The program is a result of an increase in schemes designed specifically to target those approaching retirement.
Individuals approaching retirement are most at risk, in particular, those aged 50 or over, looking to put significant amounts of money into retirement. SMSF trustees, self-funded retirees, small business owners, company directors and individuals involved in property investment are particularly at risk.
The ATO is targeting three schemes including:
- Dividend stripping – Where the shareholders in a private company transfer ownership of their shares to an SMSF so that the company can pay 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 (usually at pension phase) diverts income earned from personal services to a self-managed superannuation fund (SMSF) where it is concessionally taxed or treated as exempt from tax.
Individuals and SMSF trustees are being urged to come forward if they believe they are at risk or are already involved in an illegal scheme. In addition to severe penalties, individuals caught using an illegal scheme may risk losing some of their retirement nest egg and their rights as a trustee to manage and operate a self-managed superannuation fund.