The ATO has revealed it is examining the use of multiple SMSFs to manipulate tax outcomes as a new emerging matter.
Given the recent introduction of the transfer balance cap and disregarded small fund assets provisions, the tax office will closely scrutinise arrangements where an individual with multiple SMSFs acts within these funds to circumvent the intended outcomes of these measures, ATO deputy commissioner James O’Halloran said.
“For example, if the individual repeatedly switches between accumulation and retirement phase in these funds to ensure that large gains and income are always incurred by assets in the retirement phase, achieving a greater effective tax exemption that would ordinarily be available,” O’Halloran noted.
“At the baseline level, we believe there are some 13,600 trustees who have more than one SMSF, with 35 trustees having more than five SMSFs.”
The ATO noted it does recognise there are genuine reasons for having multiple SMSFs.
“Events which may give rise to multiple funds include blended families, so wanting to keep particular assets or amounts separate from a particular family unit, and large families,” O’Halloran said.
“Also, business versus family, which is a similar concept to blended families, where there is desire to keep business assets separate from family assets in the business SMSF that is then leased back to the business.”
He added another reason could be differing investment strategies for life stages – a risk strategy of sorts as younger people in accumulation can afford to make longer-term or higher-risk investments, whereas those in pension phase need liquidity.
“I raise this matter because while the establishment of multiple SMSFs does not of itself contravene any regulator provision, we are examining instances where it appears the establishment of another SMSF has been a precursor to behaviour intended to manipulate tax outcomes,” he said.
He raised the issue at the recent Chartered Accountants Australia and New Zealand National SMSF Conference 2018 in Melbourne.
The ATO also revealed schemes targeting older SMSFs are on its radar.
