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ATO raises alarm over SMSF asset protection schemes


Arrangements that involve a Vestey Trust may contravene super laws, the office says.

By Miranda Brownlee 9 minute read

The ATO has raised the alarm about asset protection schemes for SMSFs that claim to protect them from creditors by mortgaging their assets to a Vestey Trust – a discretionary trust established by a deed.

“It is claimed that the trust is set up to acquire the equity in the SMSF’s assets through an equitable mortgage,” the ATO said in an online update.

“The equitable mortgage is supported by the execution of a promissory note by the SMSF to the Vestey Trust. This recognises a debt is owed by the SMSF to the Vestey Trust. The mortgage is also supported by a caveat by the Vestey Trust over the SMSF’s real property.”

The arrangement could also allow a transfer of the SMSF’s cash holdings to a bank account in the name of the Vestey Trust.

The ATO said the arrangement was unnecessary because the superannuation system already protected SMSF assets from creditors.

And it warned SMSFs that the arrangement was a compliance risk and could  contravene one or more super laws.

“For example, it may result in the giving of a ‘charge’ over, or in relation to, a fund asset by the SMSF trustee or involve the borrowing of money by the SMSF trustee,” the ATO said.

“[It may also] expose fund assets to unnecessary risk if it’s not clear who owns them or cause the fund to be maintained in a way that doesn’t comply with the sole purpose test.”

The ATO also reminded trustees that SMSF money could not be used for costs related to asset protection arrangements entered into by members to protect their personal or business assets because these expenses were not incurred in running the SMSF.

“If the arrangement contravenes the super laws, penalties may apply,” it said.

The ATO is encouraging any trustees who have become involved in such  schemes to make a voluntary disclosure.

“We will take this into account when determining our compliance action,” it said.




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