ATO announce targeting of certain SMSF areas

At a recent CPA SMSF Conference the Acting Assistant Commissioner for Superannuation Kasey Macfarlane announced the ATO were targeting certain areas in relation to SMSF. These include:

1. Dividend Stripping arrangements (TA 2015/1) – activities where taxpayers use SMSF to obtain refunds of imputation credits of private companies. These activities are usually contrived arrangements where the only purpose of the structure is for tax evasion reasons.
2. Unexplained Valuation changes – where assets have been increased or decreased significantly from one year to another, the ATO will consider these funds to be high risk and may receive a questionnaire or audit form the ATO explaining the reasoning why certain assets increased or decreased significantly.
3. Private/non arms length transactions – these are always on the target list for the ATO. Trustees must ensure transactions involving related parties must be done at arms length, otherwise there is a risk of getting taxed at 47%.
4. Paying pensions – a greater proportion of super fund members are entering pension phase which means less tax payable by SMSF. The ATO have advised that pensions must be set up correctly following the trust deed and market values of assets are used on the commencement. They also remind people that the preservation age for members commencing pensions has increased to 56 years from 55 from 1 July 2015.
5. Limited Recourse Borrowing Arrangements (“LRBA”) – The ATO have seen numerous LRBA not set up correctly. We are also seeing practically that many banks are not doing these anymore or restricting the type of assets that they will borrow against eg residential vrs commercial. It seems that the only LRBA that will work in the future will be self funded ones where banks are not involved – which incidently are the ones that the Government do not like.
6. Low cost SMSF audits – the ATO will conduct reviews of those auditors who are chargeable small amounts for SMSF audits, as they do not believe they can conduct an audit for low cost.
7. Superstream – has started for medium and large employers and will commence from 1 July 2016 for small employers.

If you require further information in relation to any of these items please contact Simon Flowers or Cathy Walley of our office.