Legitimate reasons still exist to run two or more SMSFs in conjunction with one another despite the ATO’s dislike for the strategy on tax avoidance grounds, according to an SMSF lawyer.
DBA Lawyers special counsel Bryce Figot identified asset protection as a motivation to put a multiple SMSF strategy in place, particularly if the trustees of the funds favoured property investments.
“What happens if I have commercial real estate in my fund and something bad happens with respect to that real estate? Just say it burns down and sets other properties on fire and there’s asbestos exposure as a result,” Figot said.
“There could be a liability for the tenant, but it’s also quite possible, and I’ve seen it happen on a number of occasions in my career, that the owner of the real estate is held liable.
“And is owner’s liability limited to only that one asset or is it open to everything that owner has? It’s everything the owner has.”
That indicated there was merit behind individuals owning different properties across different SMSF simply to diversify and mitigate their risk, he said.
He pointed out the application of Part IVA of the Income Tax Assessment Act 1936 was something trustees had to be conscious of whenever a multiple SMSF strategy was considered.
However, he assured advisers and trustees the ATO’s attitude toward multiple SMSF strategies on tax avoidance grounds was nothing really new.
“This is a quote from the ATO: ‘This type of activity will attract close scrutiny from the ATO. We are concerned about any activity or behaviour undertaken in response to superannuation changes where the dominant purpose appears to be to create a more beneficial tax outcome for an SMSF or its members,’” he said.
“Does that mean having multiple SMSFs is a Part IVA issue or truthfully is that just a restatement of what section 177D of the Income Tax Assessment Act 1936 has said for the last 36 years?
“It’s just a restate of Part IVA as it has existed since 1981.”
