The ATO’s SMSF compliance activity over the next 12 months will pay particular attention to dividend stripping, asset values and related-party loans.
ATO acting assistant commissioner for superannuation Kasey Mcfarlane said the regulator would place great scrutiny on dividend stripping strategies, outlined in Taxpayer Alert TA 2015/1, where shareholders in private companies transfer their shareholdings to their SMSF to claim a refund for the associated franking credits in the concessional tax environment of superannuation.
“We’ll also be looking at circumstances where there are inexplicable and significant changes in the value of an SMSF asset and all of their income,” Mcfarlane said.
“And we will be also focusing on related-party transactions and arrangements that appear to be entered into on non-commercial terms.”
She said the ATO was concerned SMSFs involved in those types of activities might not be satisfying their sole purpose test obligations.
“All of those issues are potential indicators that an SMSF may not be being used for the sole purpose of providing retirement benefits for its members and it’s just important to keep in mind that ultimately all of the obligations that apply to SMSFs are designed to protect and safeguard SMSF members’ retirement savings and income,” she said.
In addition, she indicated structural problems with limited recourse borrowing arrangements (LRBA) and measures providing immediate benefits for SMSF members were issues attracting the regulator’s attention more recently.
In relation to LRBAs, she said: “That can include legal title to assets not being correctly reported and loans being taken out in members’ names and also the recourse of the lender not being limited to the particular asset under the arrangement and other SMSF assets actually being at risk as well.
“The other thing we’re seeing, which is a little bit troubling at times, is the promotion of arrangements that seek to gain a present-day benefit for members, for example, housing benefits, cosmetic surgery or holidays.”
The ATO was working closely with other regulatory bodies in its efforts to protect the integrity of the SMSF sector, she said.
“The key message I wanted to highlight is that in those small number of cases where people do choose to do the wrong thing, they can be certain that they will be detected and all government agencies will make sure that the unacceptable behaviour is addressed appropriately,” she said.