ATO warns against diverting personal services income to SMSFs. It is reviewing arrangements where individuals divert their personal services income to a self-managed superannuation fund (SMSF) to minimise or avoid tax.
It has recently issued a taxpayer alert on this matter (read it here).
Deputy Commissioner James O’Halloran said these types of arrangements are typically used by SMSF members at or approaching retirement age as income received by the SMSF trustee is concessionally taxed or treated as exempt current pension income of an SMSF in pension phase. In other words, the SMSF member purportedly avoids paying tax on their income at the marginal tax rate.
“Under these arrangements an individual performs services for a client for which the individual does not directly receive adequate remuneration for the service provided. Instead the client refers remuneration for the service to a company, trust or other non-individual entity. The entity then distributes the income to a SMSF, of which the individual is a member, as a return on investment,” O’Halloran said. (See diagram below.)
“We are currently reviewing a number of SMSFs that may be involved in this arrangement and will continue to engage directly with taxpayers and their advisers where we have concerns,” O’Halloran said.
Taxpayers who plan to enter or have entered into this type of arrangement are encouraged to seek a private ruling or make a voluntary disclosure. They may also want to seek independent advice from an adviser not involved with the arrangement.
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#[personal services income], [psi], [smsfs], [superannuation]
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