ATO tipped to target income attribution strategies

SMSF practitioners have been warned that implementing an income attribution process for clients that advantages pension accounts could attract the ATO’s attention.

SuperConcepts director Stuart Forsyth says one of the areas where part IVA the ATO may look at closely is where segregated funds with more than $1.6 million implement strategies so that income is attributed preferentially to their pension account.

“Some people might say, ‘Well, I’m over the $1.6 million so I can’t have segregation for tax purposes, but what I’ll do is have an income attribution process which advantages my pension account’,” Mr Forsyth said.

“While the member has to pay tax as though they’re an unsegregated fund, they attribute the income preferentially to the pension account so that they grow their pension account.”

The only reason for implementing something like this is for tax purposes, Mr Forsyth said.

 “We’ll see what the ATO decide to do on this, but I think they will look very closely at those situations and whether all the factors produced a conclusion that it was done for the sole purpose of minimising or avoiding tax,” he said.

Mr Forsyth said the tax office has already flagged its concerns with some other strategies in relation to part IVA, such as setting up a second SMSF for the purposes of keeping the pension account separate from the accumulation account.

“The other thing that we’ll probably hear more about over the next year is part IVA. The ATO has been mentioning it a few times. I suspect it’ll continue to be mentioned,” he said.

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