Dodgy schemes in the firing ring

The tax office keeps a close eye on artificial tax schemes. It has highlighted a trio of arrangements aimed at those who are nearing retirement and have a self-managed super fund. They should avoid the following:

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Artificial arrangements involving SMSFs and property development ventures, involving the creation of complex structures, often including a chain of interposed unit trusts, which result in the income from the property development being distributed to an SMSF, rather than to the individual, and hence subject to a lower rate of tax.

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Arrangements where SMSF members deliberately contribute an amount beyond their non-concessional contributions cap in order to manipulate the taxable and non-taxable components of their balance when they withdraw the excess.

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Arrangements where an individual or related entity grants a legal life interest over a commercial property to an SMSF, as opposed to the SMSF obtaining full legal ownership. This results in the rental income being diverted to the SMSF and taxed at lower rates while the individual or related entity retains legal ownership of the property.

The key features of schemes like these are low (or zero) tax, lots of shuffling of legal paperwork and a general air that they are “too good to be true”. (Hint: they are!) So if somebody approaches you about such a scheme, be sure to consult a trusted adviser.

MARK CHAPMAN, DIRECTOR OF TAX COMMUNICATIONS AT H&R BLOCK. MCHAPMAN@HRBLOCK.COM.AU