ATO signals warning on illegal SMSF property purchase schemes

Moreover, while these schemes may be structured differently, they typically involve the set up or use of an SMSF or a rollover of a member's super benefits from an existing fund to the SMSF

SMSF investing in a property trust (an unrelated unit trust) for a fixed period and rate of return, being a contributory fund with other investors, can also form part of the scheme. There may also be cases of on-lending of money by the property trust to individuals to help them purchase real property, secured by mortgages over the property.

“Once the investment is in place, the member gains access to money from a third-party entity to help the fund purchase residential property under an arrangement commonly referred to as a 'loan',” the ATO said.

“Depending on the scheme, this money is used for all or part of the deposit, the balance of the purchase price and costs related to the purchase.

In some cases, the money is also used to help consolidate the member's personal debts to help them secure a home loan, the ATO warned.

In return for a high fee paid by the fund, the scheme promoter commonly helps by establishing the SMSF and the property investment and organising the purchase of the property, including the payment of the deposit and home loan.

”These arrangements are established and promoted to look like a genuine SMSF investment and scheme that wants to help individuals purchase a home,” the ATO said.

"However, they often contravene one or more of the super laws, which may give us reason to view the SMSF as a 'sham' and not a legitimate super fund.

This includes providing members with a current-day benefit set up and be maintained in a way that doesn’t comply with the sole purpose test.

The arrangement may also involve the illegal early access of super benefits by members and the giving of financial assistance to a member using the resources of the fund, according to the ATO.

“When determining whether a scheme gives rise to a contravention of the super laws, we will take a 'look-through' approach and consider the arrangement as a whole,” the ATO said.

“If fund monies are used to help purchase a house for a member, indirectly through the SMSF's investment in other entities, this will be treated as illegal early access of super benefits by the member.

“The amount will be included in the member's assessable income and taxed at their marginal rate. Tax shortfall penalties may also apply.

The trustee will also have contravened one or more of the super laws and serious penalties may apply. The trustee may be personally liable to pay an administrative penalty and disqualified from acting as trustee.

“If trustees are involved in a scheme like this, they should make a voluntary disclosure, see SMSF early engagement and voluntary disclosure service. We will take this into account when determining any penalties that may apply,” the ATO warned.

“Serious penalties may also apply to promoters of schemes that are likely to result in the illegal early release of super benefits to members.

“If you're approached by promoters or think you're involved in a scheme you can report it to us confidentially.”