SMSFs and property development projects on ATO radar
The ATO has warned it is continuing to see instances in which closely-held groups seek to inappropriately divert profits to a related SMSF to access concessional tax rates.
The regulator has issued an alert (Taxpayer Alert TA 2023/2) outlining its concerns with arrangements that it has recently identified in which the profits of a property development enterprise are diverted to a related SMSF through the use of a special purpose vehicle owned by the SMSF.
The alert provides an overview of the arrangements it is reviewing and outlines what trustees should do if they have entered or are considering entering such arrangements.
The alert also reinforces the messages already contained on the ATO website about the significant tax and SISA regulatory implications of schemes which encourage taxpayers to channel money inappropriately through their SMSF.
“The arrangements we’re reviewing involve closely held groups (which include an SMSF) and non-arm’s length dealings between group members,” the ATO said.
“Some taxpayers and advisers may be under the misapprehension that, because the SMSF itself is not directly involved in the non-arm’s length dealings, the arrangement is effective in obtaining concessional tax treatment.
“However, the Alert makes it clear any non-arm’s length transaction between entities within the same closely held group can give rise to non-arm’s length income for an SMSF in that same group.”
The ATO said trustees of an SMSF looking to participate in a property development should ensure the arrangement will meet their income tax and regulatory obligations.
For more information, go to the SMSF regulator’s bulletin SMSFRB 2021/1 ‘Self-managed superannuation funds and property development’.
