SMSF practitioners have been cautioned against the deliberate use of excess non-concessional contributions refunds as a way of reducing the taxable component of their clients’ super funds, as the practice could result in significant penalties.
DBA Lawyers special counsel Rebecca James says with the government’s proposed $500,000 non-concessional contributions cap ruling out any re-contribution and withdrawal strategies, SMSF practitioners may be tempted to deliberately use refunds for excess non-concessional contributions as a way of reducing the taxable component for their clients’ funds.
However, she warned that the deliberate use of these refunds as a tax strategy could risk the application of Part IVA of the Income Tax Assessment Act 1936.
“Typically for part IVA you need to obtain a tax benefit. The issue I can see with strategies like this is that often the tax benefit is that when super death benefits are paid to adult children, they won’t pay the 17 per cent tax because it’s all in the tax-free component rather than taxable component,” Ms James said.
The ATO recently confirmed that Part IVA could apply to these types of arrangements, however each individual case would need to be considered on its own facts.
Ms James said the promoter penalty laws under div 290 Income Tax Assessment Act 1997 could also apply to these strategies.
“There’s been one case involving the promoter penalties and the penalties were huge. That was an early release arrangement,” she said.
“Where we think arrangements are easy for the ATO to attack is where it’s a repetitive strategy or where the tax benefit is evident immediately.”
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