The ATO has revealed it has taken a renewed interest in certain SMSF activities and will closely monitor these key areas.
During the tax office’s SMSF update May webinar last Thursday, ATO superannuation director Mary Simmons said in light of the recent suite of super changes: “We’ve identified some renewed interest in arrangements that are targeting SMSF members, particularly those that are aimed at channelling money into an SMSF to take advantage of the concessionary or nil tax rates that apply.
“In November, we published an update to our Super Scheme Smart campaign to highlight existing and new emerging arrangements that we consider high risk from a regulatory and tax perspective.”
One area of concern is the deliberate use of multiple SMSFs to manipulate tax outcomes.
“While the establishment of multiple SMSFs itself does not give rise to compliance issues, the ATO is examining the instances of those cases where it appears the establishment of another SMSF has been a precursor to subsequent behaviour intended to manipulate tax outcomes,” Simmons said.
“For example, switching each of the respective funds between accumulation and retirement phase to artificially segregate pension assets.”
Another arrangement the ATO is monitoring is where an individual or related entity grants a life interest over a commercial property to an SMSF.
“There are concerns that this arrangement has the potential to divert income to the SMSF, as well as be used to avoid exceeding contribution and transfer balance caps that would otherwise occur if the entire asset value was contributed to the SMSF rather than just the value of the life interest,” she said.
She also reiterated the ATO will continue to monitor the use of reserves by SMSFs.
“In recognition of wide industry practices relating to the maintenance of reserves, we confirmed in our March bulletin that we would not apply compliance resources to review arrangements entered into by SMSFs before 1 July 2017, provided that the facts and circumstances do not indicate that the use of reserves by the SMSF was a means of circumventing the restrictions imposed by these [super] reform measures,” she noted.
“Now post 1 July 2017, the use of reserves which may attract our interest includes situations where there are the creation of new reserves, unexplained interest increases in balances of an existing reserve maintained by an SMSF, or allocations of amounts from a reserve directly into the retirement phase.
“This also extends to reserves created before 1 July 2017.”
During the webinar, the ATO revealed as at the end of April only around 11,000 SMSFs had adopted events-based reporting and lodged a transfer balance account report form, with less than eight weeks before events-based reporting for SMSFs became a reality.
“It’s fair to say SMSFs are likely to continue to see more reform or at least outcomes of reviews involving the super industry,” Simmons said.
“Although most of these are still unknown, we plan to continue our engagement and communication with industry to support SMSF professionals and trustees.”
