The ATO has released a taxpayer alert warning SMSF retirees that they are facing increased regulatory scrutiny in relation to their franking credit benefits and that it is considering a new public ruling on the matter.
Taxpayer alert TA 2015/1 warns SMSF members against claiming franking credit benefits by channelling dividends from shares in private companies through SMSFs.
According to the ATO, the practice occurs when a member of an SMSF with interests in a private company transfers their interests to an SMSF and then distributes retained profits and franking credits through the SMSF.
Then, the SMSF claims the franking credit tax offset, resulting in the tax paid by the company being refunded directly to the SMSF, which can then be distributed to the member tax free.
“We are closely scrutinising SMSF members suspected of avoiding their tax responsibilities by channelling company profits through their SMSF,” said ATO deputy commissioner Tim Dyce.
As a result of this activity, the ATO will also consult on the application of relevant anti-avoidance provisions and consider a public ruling on such arrangements.
The ATO believes SMSF members approaching retirement age are more likely to get involved in these schemes, because profits from shares are tax exempt as they are treated as supporting the payment of pensions.
Regular taxpayers involved in similar arrangements should review their taxation affairs and consider seeking independent advice, the ATO also stressed.
“The ATO may undertake compliance activity seeking to apply the taxation and superannuation provisions, including anti-avoidance rules to such arrangements,” Mr Dyce said.
“We encourage SMSF members who think they may be involved in such arrangements to contact us and make a voluntary disclosure or seek a private ruling from us.
“In our actions, we will engage with affected SMSF trustees and members to develop pragmatic options to address the tax and superannuation consequences of the arrangement.”
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