The ATO has identified the treatment of personal services income among SMSF trustees as a key focus of its compliance activity regarding tax planning practices.
“We have identified some arrangements where individuals earning personal services income look to put together structures to divert that income to SMSFs so it’s actually taxed at the lower rate,” ATO superannuation assistant commissioner Kasey Macfarlane said during a Self-managed Independent Superannuation Funds Association-hosted webinar.
“We have serious concerns with that in terms of the general anti-avoidance provision and non-arm’s-length income and other regulatory issues as well.”
To manage the issue, Macfarlane revealed the tax office was offering SMSF trustees who had those arrangements in place the opportunity up to 31 January 2017 to come forward and voluntarily work with the regulator to fix the situation.
“When they do that we’ll work with them on a case-by-case basis, but individuals who do come forward will have administrative penalties remitted in full, so once again there is an advantage there,” she noted.
Macfarlane emphasised the regulator took tax planning schemes such as dividend stripping and the treatment of personal services income very seriously, but was adopting a moderate stance in this area.
“We do take strong action in relation to that type of non-compliance, but our preference is always to provide assistance, education and support and actually adopt a ‘prevention’ rather than ‘cure’ approach to prevent significant non-compliance occurring in the first place,” she said.
“So while we’ve detected a relatively small number of SMSFs in these schemes at the moment, our process is really about getting that education and information out there to people around the arrangements and schemes so they don’t become a problem in the future.”
As a result, the ATO launched an online communication initiative in August, called Super Scheme Smart, containing a variety of content aimed at SMSF trustees and advisers to highlight the potential pitfalls of those retirement planning arrangements.