ATO sheds further light on two-fund strategies

The ATO has clarified its stance on two-fund strategies used by SMSFs and whether this approach will give rise to the regulator’s scrutiny, following continued concerns from the industry.

“A question that regularly comes up is whether you can set up a second SMSF, particularly now where you have members with a total super balance greater than $1.6 million but want to continue to segregate assets, or for estate planning considerations,” ATO SMSF segment commissioner Kasey Macfarlane told the Chartered Accountants Australia and New Zealand National SMSF Conference in Sydney last week.

“The bottom line is there’s nothing stopping someone stepping up a second SMSF and doing so on its own isn’t a concern.

“What will concern the ATO is where the establishment of that second SMSF is a precursor to other behaviours that are intended to manipulate tax outcomes.

“So if you set up a second SMSF and have assets segregated, that’s all fine but as soon as you start playing around and manipulate funds between retirement and accumulation phase then we’re going to have a closer look and ask people what’s going on there.”

Macfarlane revealed that a number of two-fund arrangements the ATO has reviewed for general anti-avoidance rules and tax planning arrangements have involved SMSFs and so will continue to keep a close watch on such arrangements.

“Often what’s happened is that the person has set up what I would call a ‘special purpose vehicle’ SMSF to put it into that arrangement and to protect their main retirement savings,” she explained.

“It is an issue that’s on our radar not because there’s anything wrong per se with having a second SMSF but sometimes it is actually a precursor to other behaviours that are of concern.”

In July, the ATO declared its dislike of running two SMSFs in conjunction with one another as a method by which to manage and comply with the $1.6 million transfer balance cap.

The regulator flagged the potential for this strategy to be considered a tax avoidance measure under Part IV2 of the Income Tax Assessment Act.

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