The ATO has issued a further Taxpayer Alert in relation to unlawful diversion of profits to SMSFs in property developments.
This may occur when closely held groups which include an SMSF have non-arm’s length dealings in the way profits or costs are allocated across the entities undertaking the development.
The risk for trustees and members of the SMSF is that the non-arm’s length allocation of profits or costs will result in penalty tax to the SMSF. It may also place the SMSF’s status as a concessional fund at risk
Tip: Obtain independent legal advice about the tax implications of any property development by an SMSF prior to entering such transactions.
Residential Property Purchase
Another scheme which is in the ATO’s sights may involve a first home buyer desperate to get into the property market using super savings.
Typically, the promoter will suggest that the home buyer establish an SMSF, roll into that fund the member’s super benefit from another find, the SMSF will then invest in an unrelated property trust which the lends the money back to the home owner to fund all or part of the purchase of a first home.
TIP: Don’t do it. Obtain independent advice. It not only adversely impacts your super savings but may be in breach of your loan application to a financing back if the proper source of the funds are not disclosed.