The ATO has announced its areas of focus for the coming year. Specifically, the ATO will be targeting the following;
- dividend stripping arrangements of a kind or similar to those outlined in our recently issued taxpayer alert TA 2015/1 (about dividend stripping arrangements involving the transfer of private company shares to an SMSF)
- inexplicable, significant and out-of-pattern changes in the value of an SMSF’s assets and/or an SMSF’s income
- related-party investments and/or transactions entered into on non-commercial terms.
All of these issues potentially indicate non-compliance with the SMSF legislation and regulations. Failure to comply with the law can lead to significant penalties for the trustees of the super fund. At its simplest, an SMSF must be maintained for the sole purpose of providing for your retirement. Actions which result in a benefit before this time is the key concern of regulation.
Further, the ATO has also identified a number of activities where advisors are inducing inappropriate transactions which could land the members of the fund in hot water. These include;
- the marketing and selling of investment products via ‘cold calls’, such as real property investments, where the primary focus is on enticing people to invest and then having them establish an SMSF to invest in the product. Individuals are often advised to establish an SMSF without regard to whether or not an SMSF is appropriate to the needs and circumstances of the particular person or persons
- limited recourse borrowing arrangement (LRBA) loans that are not structured correctly, including incorrect registration of the ownership of property acquired under an LRBA, and other SMSF assets in addition to the asset acquired under the LRBA being used as security for the loan. That is, the lenders recourse is not appropriately limited to the underlying asset
- the promotion of arrangements that seek to gain a present-day benefit for the member, for example housing benefits, cosmetic surgery, holidays etc.
Given the penalties involved in contraventions of the SMSF law include significant fines, penalty tax rates and even jail time, you should ensure that you seek , and follow, appropriate advice for any changes to the way your SMSF is managed.