SMSF trustees engaging in property development schemes through the use of a special purpose vehicle (SPV) have been warned the ATO has broadened the scope of a key definition in a recent tax ruling on the matter, possibly exposing them to additional scrutiny.
Commenting on Taxpayer Alert (TA) 2023/2 released in June, ASF Audits head of education Shelley Banton suggested the ATO issued the alert because trustees were bypassing their existing compliance obligations outlined in SMSF Regulator’s Bulletin (SMSFRB) 2020/1 relating to SMSFs and property development.
“My take on this alert is that some trustees were starting to get a little bit cute because they took SMSFRB 2020/1 as the bible and developed new arrangements that were outside the scope of that bulletin. So the ATO has now doubled down and set an extremely high bar for these particular schemes,” Banton told attendees at an ASF Audits webinar today.
She added the recent tax ruling now uses the term ‘controlling mind’ in place of related party and this wording shift could lead the ATO to more broadly examine potentially non-compliant set-ups.
“The immediate difference between SMSFRB 2020/1 [and TA 2023/2] is that there is no specific entity mentioned, it just says SPV,” she noted.
“What the ATO is focusing on is when you have a controlling mind that makes the decisions for one or more property development groups and then they decide on a project and establish an SPV for that purpose.
“There’s no definition of controlling mind in [TA 2023/2] or in the Superannuation Industry (Supervision) (SIS) Act because it can refer to anything. It can refer to an entity or it can refer to a group of individuals or anything else.
“The definition of a related-party is no longer the rigid criteria [it once was], which means the concept of control that we are familiar with under the related-party rules has been redefined in this alert as a controlling mind, which really has a much wider application.”
She said she believed the regulator was aiming to expand its scope for compliance activity, prompted by instances where trustees might be deliberately disregarding the regulations.
“What the ATO is trying to do here is no longer be prescriptive in the types of arrangements that could potentially fail with property development,” she said.
“It’s obvious the ATO has seen a definite shift in how these arrangements are being set up and they are casting a wider net to ensure that SMSFs aren’t circumventing the rules to try and get more money into the fund.”