ATO warns trustees on related party issues

Despite acknowledging a majority of trustees are “responsible and compliant”, the Australian Taxation Office (ATO) has warned it will be taking a comprehensive approach to loans, related party transactions and audits.

Speaking at the Institute of Chartered Accountants Australia (ICAA) National SMSF conference in Melbourne yesterday, ATO assistant deputy commissioner of superannuation Stuart Forsyth said its “strong message” is to be vigilant with related party dealings.

“Related party dealings are almost invariably what gets us excited, [including] loans to members or transactions [trustees] shouldn’t have done,” Mr Forsyth said.

“If you’re running a plain vanilla fund [and] you’re not making loans to members, you will have very little issue with the ATO,” he added.

With 20 to 25 per cent of all contraventions reported being loans to members, if penalty laws are introduced in the new parliament, the ATO will run a marketing campaign detailing that a loan to a member is a breach, Mr Forsyth said.

“People get confused [by] the five per cent test and the fact that you can lend to a related entity five per cent of the assets,” Mr Forsyth said.

“But very few of the loans we see to members are under five per cent. So that’s not really why they’re confused. They are simply dipping into the money. We take, as you can imagine, a fairly dim view of that.”

Limited recourse borrowing arrangements (LRBAs) are also cause for concern, with trustees not always entirely aware of the associated complexities and timing issues.

“We’ve seen far too many cases of people who have gone out on the weekend and bought a property. Then they go see the adviser on the Monday and they have the contract already. And sometimes the fund doesn’t exist yet,” Mr Forsyth said. “There’s a lot to do very quickly.”

The ATO will also be focusing on low-cost audits, he added, with concerns that they may not be offering a comprehensive or adequate service.

“Marketing is often, in my experience, just that – it’s not really what’s happening,” he said.

However, Mr Forsyth acknowledged 85 to 95 per cent of SMSF trustees are responsible and compliant, “which is an acknowledgement of the work of advisers”.

Speaking about the future directions of the sector, Mr Forsyth said demographic issues would continue to shape policy.

“There will be increasing focus on the retirement age that you can take out your superannuation tax-free and the ages which pensions can commence,” he said.

“Longevity is a big issue and demographic challenges aren’t going away, but I am confident that the industry is well placed to continue to deliver.”