SuperConcepts general manager of technical services and education Peter Burgess said one of the strategies that has been on the ATO’s watchlist is setting up a second SMSF.
“The ATO made some statements earlier this year about situations where clients may set up a second SMSF to circumvent the rules,” Mr Burgess told delegates at the SMSF Summit in Sydney.
“Now, I’ve got to say that we may have misinterpreted the ATO view, and based on some of the recent comments coming out of the ATO, I’m not so sure they’ve got an issue with people setting up a second SMSF, even if people are doing it to separate their pension assets from their accumulation assets.”
What they do have an issue with, he explained, is what happens next with the second SMSF.
“What they’ve always said is that where a second SMSF is being created, it’s a potential pre-cursor to behaviour they don’t like,” he said.
“If they start to see assets being moved between those funds then you can expect to see some problems from the ATO.”
Given that moving money from one fund to another fund will be a CGT event anyway, Mr Burgess said there would only be limited situations where a client could obtain a tax benefit by moving assets between funds.
“I’m not sure this is such a big issue and we may in fact be jumping at shadows here,” he said.
“I don’t think they’ve got a problem with people setting up a second fund to separate pension assets from accumulation assets – they’re worried about what happens next.
“They will hopefully be making some further statements before the end of the year so that we have some clarity as to when your SMSF client can set up a second SMSF,” added Mr Burgess.
Amen and hallelujah to that. Thank you Mr Burgess. When the new rules were announced, in November 2016, i thought that one of the ways to ease administrative burdens was to create a second SMSF leaving the first one with the 1.6 limit. Yes, this arrangement would incur extra costs so that would have to be weighed up against the benefit of doing it. But there was no malice in the idea, no scheme, just a way to help clients cope. There was to be no tax benefit whatsoever: The income of the first fund would be tax exempt and the income of the second one would be taxed at 15 per cent just like it would be if there wasn’t a change.
The ATO would not know if their ass was on fire – how about they give some basic clarification to these grey areas we all know exist! Where is the problem anyway? People will think the growth assets are in the pension phase but the ass could just as easily fall out of the market and it will backfire. People talk about Part IVA but isn’t anyone who starts a pension who doesn’t need the money technically only doing it for tax avoidance to begin with?
As I understand it the ATO’s concern is with switching the pension off in in the first fund, starting a pension in the second fund and subsequently realising capital gains in the second fund now that it is in pension phase. Further, after some time the pension in the second fund is stopped, a pension is commenced in the first fund and capital gains in the first fund are then realised.