The ATO continues to see instances in which closely held groups seek to inappropriately divert profits to a related SMSF to access concessional tax rates.

Taxpayer Alert TA 2023/2 outlines the ATO’s concerns with arrangements that it has recently identified in which the profits of a property development enterprise are diverted to a related SMSF through the use of a special purpose vehicle owned by the SMSF.

The Alert provides an overview of the arrangements the ATO is reviewing and outlines what you should do if you have entered or are considering entering such arrangements. The Alert also reinforces the messages already contained on the ATO website about the significant tax and SISA regulatory implications of schemes which encourage taxpayers to channel money inappropriately through their SMSF.

The arrangements under review involve closely held groups (which include an SMSF) and non-arm’s length dealings between group members. Some taxpayers and advisers may be under the misapprehension that, because the SMSF itself is not directly involved in the non-arm’s length dealings, the arrangement is effective in obtaining concessional tax treatment. However, the Alert makes it clear any non-arm’s length transaction between entities within the same closely held group can give rise to non-arm’s length income for an SMSF in that same group.

If you’re the trustee of an SMSF that is looking to participate in a property development, you should ensure the arrangement will meet your income tax and regulatory obligations.

For more information, read SMSF Regulator’s Bulletin SMSFRB 2021/1 Self-managed superannuation funds and property development.

Remember, if something seems too good to be true, then it probably is. You should always speak to your SMSF professional before entering any arrangement. Super Scheme Smart has more information on other arrangements and schemes that catch the ATO’s attention.