ATO warns against SMSF tax arrangements
The tax office has warned it is reviewing arrangements where individuals divert their personal services income to a self-managed superannuation fund to minimise or avoid tax.
Deputy commissioner James O’Halloran said these types of arrangements are typically used by SMSF members at or approaching retirement age as income received by the SMSF trustee is concessionally taxed or treated as exempt current pension income of an SMSF in pension phase.
This, he said, means the SMSF owner effectively avoids paying tax on their income at the marginal tax rate.
"Under these arrangements an individual performs services for a client for which the individual does not directly receive adequate remuneration for the service provided,” Mr O’Halloran said.
"Instead the client refers remuneration for the service to a company, trust or other non-individual entity. The entity then distributes the income to an SMSF, of which the individual is a member, as a return on investment.
“We are currently reviewing a number of SMSFs that may be involved in this arrangement and will continue to engage directly with taxpayers and their advisers where we have concerns,” Mr O’Halloran added.
The ATO has encouraged taxpayers who plan to enter or have entered into this type of arrangement to seek a private ruling or make a voluntary disclosure. They should also seek independent advice from an adviser not involved with the arrangement, the tax office said.