Last week, the ATO issued TA 2016/6, which indicated the tax office is reviewing arrangements where individuals divert their personal services income to an SMSF to minimise or avoid tax.
The ATO is being alerted to this activity through red flags such as out of pattern income and tip-offs, as well as other intelligence.
Professional advisers found to be promoting these arrangements are exposing themselves to the possibility of prosecution and penalty under the promoter penalty laws, ATO deputy commissioner James O’Halloran told SMSF Adviser.
“If there did happen to be any advisers that are promoting this, we certainly are putting them on notice,” he said.
“We will be bringing forward all of the appropriate sanctions and scrutiny that should apply to anybody that may be promoting this to their clients or to potential clients.”
For taxpayers, the ATO will be looking at whether the anti-avoidance provisions under part IVA would apply, and whether the non-arms length income (NALI) provisions could apply. If applicable, it could result in the relevant earnings being subject to almost 50 per cent tax.
In addition, there could be a breach of the superannuation regulations, such as the sole purpose test.
Professionals and trustees who may be engaged in these arrangements could put themselves at a significant advantage if they voluntarily disclose their circumstances to the ATO.
“It’s fair to say that there will be a less strong enforcement outcome if [taxpayers] come forward, and certainly reduction in penalties is one of those aspects,” the ATO’s assistant commissioner Kasey Macfarlane told SMSF Adviser.
While the ATO is intent on stamping out this activity, both Mr O’Halloran and Ms Macfarlane noted the number of cases is relatively small.
Overall, the ATO also noted the relatively clean compliance record of the SMSF sector’s members and associated professionals.
“We seek the support of advisers to protect their clients’ interests and to continue to work in partnership with the ATO to ensure that their clients are in a position to make informed decisions about their future and superannuation investments,” Mr O’Halloran said.
“We are keen to prevent individuals making ill-informed decisions in the use of SMSFs that will adversely impact their future.”
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