ATO flags warning on retirement schemes

Financial planners and accountants who are found to have promoted retirement planning schemes to their clients could face promoter penalty laws, and punishment including prosecution, the Australian Taxation Office (ATO) warned.

The ATO signalled that schemes like dividend stripping, where shareholders in a private company transferred shares to a self-managed superannuation fund (SMSF) to move profits into a tax-free environment would not be acceptable.

Others schemes that were unacceptable included:

  • Non-arm's length limited recourse borrowing arrangements — when an SMSF trustee implements LRBAs set up or maintained on terms not consistent with an arm's length dealing;
  • Personal service income — when an individual, usually, at pension phase, shifts income earned from personal services to an SMSF where it is concessionally taxed or tax-exempt.
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The ATO launched project ‘Super Scheme Smart', as it recently saw a spate of schemes designed particularly to target those nearing retirement.

These schemes were particularly evident in the self-managed superannuation fund (SMSF) space, where accountant advice was more heavily represented.

The ATO said those aged 50 or over who were approaching retirement and wanted to place large amounts of money into retirement were most at risk, particularly SMSF trustees, self-funded retirees, small business owners, company directors, and those involved in property investment.

The project formed a part of the ATO's broader focus on tax avoidance schemes.

ATO deputy commissioner, Michael Cranston, said clients depended heavily on the advice of financial planners and accountants to manage their retirement planning.

"Unfortunately, promoters of these risky schemes are aware of the role that advisers play at this critical time and are targeting them to get their assistance in recommending schemes to clients," Cranston said.

"In order to put a stop to these schemes, we are encouraging people to come forward if they believe they are at risk, are already involved in a scheme or believe their clients are," Cranston said.

"As a trusted adviser, you may be the first port of call in identifying a problem. The best defence is working together cooperatively. We have plenty of resources available on the Super Scheme Smart website."

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"SMSF trustee implements LRBAs set up or maintained on terms not consistent with an arm's length dealing" when the SMSF LRBA was first allowed, several well respected technical presenters indicated that the ATO had issued no guidelines in this area, and in later consultation with the ATO stated there was no requirement like this at all. You could essentially charge any level of interest, depending on what provided the best overall advantage.

I queried it at the time, as ultimately and logically, blind Freddy could see that it had to revert back to this current status after all the 'clever' people utilised the loop hole to their advantage, and it began to show on tax revenue.

Whilst we never put any of these in place, I wonder how many other planners took on board that initial information and did so in the 'client's best interest', without meaning to be implementing a 'scheme'?

I attribute as much blame to the world class ignorant politicians we have voted in, past and present, who implement changes and 'laws' without providing the detailed framework or even rudimentary consideration beforehand. If we approached planning for our clients as they approach planning Australia's future, we would be banned and likely jailed.

You can't blame Parliamentarians for the ATO changing its policy. There is and was plenty of unofficial information from the ATO, such as the minutes from a number of National Tax Liaison Group meetings where the ATO had said that that a nil interest rate for a non-arm's length LRBA would be acceptable, thence, on a whim, officially change their policy. Further, a statutory body, such as the ATO, has too much power in dictating how they interpret the law, which at times may be against the various regulations ratified by the Parliament or passed the legislative processes of Parliament.

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