The tax office has flagged three tax planning arrangements that can appear compliant on paper, but are in effect attempts to circumvent or minimise taxpaying obligations for clients with sizable superannuation balances.
ATO adds new ‘paper shuffling’ tax schemes to official watch list
This morning, the ATO added new information about suspect retirement planning schemes to its Super Scheme Smart program, highlighting arrangements that have become particularly problematic in the post-reform environment.
Consistent with warnings in late September, these updates specifically flag artificial arrangements involving SMSFs and related-party property development ventures, which have been on the tax office’s radar for several months.
Further, the ATO will be monitoring arrangements where an individual or related entity grants a legal life interest over a commercial property to an SMSF. This results in the rental income from the property being diverted to the SMSF and taxed at lower rates, while the individual or related entity retains legal ownership of the property.
Arrangements where SMSF members deliberately exceed their non-concessional contributions cap to manipulate the taxable component and non-taxable component of their fund balance will also be added.
These arrangements have been of concern to the tax office since last financial year at minimum, but adding them to this list signals a considered focus, and is an official warning to professionals who are found to be promoting such structures.
A consistent theme with the structures is that they are disguised to look legitimate, which involves significant “paper shuffling”, ATO deputy commissioner James O’Halloran told sister publication SMSF Adviser. They are also designed to give a taxpayer a minimal or zero amount, or sometimes a refund or concession.
Also speaking to SMSF Adviser, ATO deputy commissioner Kasey Macfarlane said while these arrangements are not entirely resultant of the superannuation reforms, they are potentially more attractive in a post-reform environment because of their ability to reduce tax liabilities and give false indications of an asset’s worth.
The move to put these items on an official watchlist is not necessarily an indication of a pervasive problem, but that the ATO will consider allocating additional compliance resources to the issues at a later date if they persist.
As the ATO has indicated on several occasions, voluntary disclosure will give clients the best shot at a favourable outcome. Penalties may not be remitted, but they have a significantly higher chance of being reduced if a trustee comes forward, versus if they are found out by the tax office.
You can access the official guidance here.
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