The ATO says that it is currently reviewing arrangements where individuals (at or approaching retirement age) purport to divert personal services income to a self-managed superannuation fund (SMSF) to minimise or avoid income tax obligations as described in TA 2016/6 Diverting personal services income to self-managed superannuation funds.

Under these arrangements an individual performs services for a client. The individual does not directly receive any or adequate remuneration for the services they provide. Instead the client is instructed to pay fees or remuneration for the service provided by the individual to a company, trust or other non-individual entity. The relevant non-individual entity then distributes the income to a SMSF, of which the individual is a member, as a return on investment. The purported outcome of the arrangement is that the income is either exempt from tax or taxed concessionally rather than being subject to tax at the individual’s marginal tax rate.

The arrangements described in TA 2016/6 are highly complex with potential income tax and superannuation regulatory implications for the fund and the individual.

We recognise the importance of preserving the assets which SMSFs hold to fund retirement incomes, so we’d like to invite individuals and trustees who have entered into an arrangement of the type described in TA 2016/6, to come forward and work with us.

Where individuals and trustees come forward and work with us to resolve relevant issues, we anticipate that in most cases the personal services income distributed to the SMSF by the non-individual entity would be taxed to the individual at their marginal tax rate.

Issues affecting the SMSF will be addressed on a case-by-case basis, but we will take the individual’s co-operation with us into account when determining the final outcome.

Individuals and trustees who are not currently subject to ATO compliance action, and who come forward before 31 January 2017, will have administrative penalties remitted in full. However, shortfall interest charges still apply.

[ATO website] [LTN 141, 25/7/16]