Promoters of dodgy retirement planning schemes are currently targeting self-managed superannuation fund (SMSF) trustees and retirees, putting the trustees and retirees at risk of significant penalties, the Australian Tax Office (ATO) warned this week.
The ATO outlined three specific retirement planning arrangements that appear legitimate, involve a lot of paper shuffling and are framed as being designed to minimise or avoid tax, but, which could in fact be illegal.
“Just because an arrangement is structured in a way which appears to satisfy certain regulatory rules does not mean it is legal,” said ATO Deputy Commissioner James O’Halloran.
“Such arrangements can put SMSFs at significant risk of breaching the superannuation regulatory rules as well as the taxation law,” he added.
The first arrangement involves SMSFs and related-party property development ventures.
The second relates to 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 whilst the individual or related entity retains legal ownership of the property.
The third scheme relates to where individuals (including SMSF members) deliberately exceed their non-concessional contributions cap to manipulate the taxable component and non-taxable component of their fund balance upon refund of the excess.
“If a taxpayer becomes involved in any illegal arrangement, even by accident, they may incur severe penalties, jeopardise their retirement savings and risk losing their rights as a trustee to manage their own fund,” O’Halloran said.
A News.com.au article reported that possible penalties range from unpaid tax bills to the SMSF itself being deemed non-compliant in the most extreme cases, in which case the ATO confiscates 50 per cent of the fund’s assets. Fewer than 50 funds are deemed non-compliant by the ATO each year.
“There is a real impact on individuals moving into retirement who may even accidentally find themselves entering into these schemes,” O’Halloran said.
The ATO released further information about risky retirement schemes though its Super Scheme Smart program.
The program is designed to give taxpayers access to relevant case studies and information packs to ensure they are well-informed about illegal arrangements, the significant risks associated with those arrangements, what warning signs to look for and where to go for help.