SMSF members should be advised not to pass on to their fund shares or options they have personally received in place of payment for services provided as such a move is likely to breach a number of tax and superannuation laws, an SMSF specialist has warned.
SMSF Alliance principal David Busoli said the frequency of fund members attributing shares or options issued to them personally to their SMSF was not common, but issues related to such moves were extensive and usually had to be unravelled at significant cost.
“The attributing of shares or options to an SMSF relates to the personal services income rules, but for an SMSF is a breach of section 66 of the Superannuation Industry (Supervision) (SIS) Act,” Busoli told selfmanagedsuper.
“The member has a right to those assets, but they are not an allowable acquisition for an SMSF because it is not the fund which has earnt them.”
He noted the ATO had stated its position in regards to diverting personal services income to an SMSF in Taxpayer Alert 2016/6 and highlighted which parts of tax and superannuation law are breached when doing so.
“The ATO’s position is that the general anti-avoidance rules in Part IVA of the Income Tax Assessment Act (ITAA) 1936 may apply and the transaction may breach the sole purpose test in section 62 of the SIS Act,” he said.
“The ATO’s position is the asset acquired might also be an excluded asset under section 66 of the SIS Act and it may also be subject to non-arm’s-length income provisions and taxed at 45 per cent on both its income and growth under section 295-550 of the ITAA 1997.”
He warned SMSF advisers, trustees and members planning to move shares or options received in place of payment for personal services into an SMSF not to rely on their own views and seek ATO advice.
“I have seen professional advice stating these arrangements are okay because in their opinion it was fine, but this runs counter to what the ATO has said and who wants to risk being the test case in this matter,” he said.
“An SMSF provides significant opportunity and flexibility, but is still subject to basic compliance rules. If a proposed course of action seems to bend those rules, it should be checked out thoroughly, possibly to the extent of a private binding ruling.”