Addressing SMSF Adviser’s SMSF Summit 2019 in Perth last week, ATO assistant commissioner Dana Fleming said the top 100 SMSFs in the sector had over $8.3 billion in assets between them and had seen $500 million worth of growth in the 2019 financial year.
“In our stats, we have provided more granular information around our larger funds and the numbers and ranges within, so there are 22 funds with greater than $100 million in our population,” Ms Fleming said.
“We have risk-profiled all of them and a number of them we were happy with and didn’t need to pursue any further inquiry, but 35 per cent of them had some risk flags that we wanted to look at more closely.”
Ms Fleming said the top causes of concern to the ATO among these funds were their use of LRBAs and non-arm’s length arrangements, as well as growth rates in excess of 1,000 per cent per year in some cases.
“The rapid growth rates are concentrated around commercial property development and acquisition of commercial properties from related parties, or unlisted shares; the pattern being an asset gets sold in for a particular value and increases significantly in value within a few years and gets sold for a large profit, building up wealth in a low-taxed environment,” she said.
“At first glance, this looks highly suspicious and that is where we are making further inquiries.”
Ms Fleming said the ATO’s SMSF and private wealth segments were working collaboratively on a number of the large SMSF investigations.
“Most of these SMSFs sit within a private wealth group and a lot of the arrangements are with entities within that group. It’s also often income tax aspects within other parts of the group that complement the activity in the SMSFs,” she said.
However, Ms Fleming pointed out that the majority of the high-balance funds were complying correctly with super rules and had been able to amass large amounts of wealth prior to the implementation of contribution limits.
“A lot of people get concerned about the size of these funds, but we have to remember we’ve only had contribution caps for a relatively short time,” she said.
“A lot of these funds are quite old and have contributed a lot of their wealth before we had contribution caps, and once you reach a large size, the incremental growth each year is a lot larger, so there are very valid reasons for some of the funds in this population.”