On 29.4.16, the Tax Office issued Taxpayer Alert TA 2016/6 warning individuals about arrangements purporting to divert personal services income (PSI) to a self-managed superannuation fund (SMSF) to avoid paying tax at personal marginal rates.
The ATO said it is reviewing arrangements whereby individuals perform services for a client but do not directly receive any (or adequate) consideration for the services. Rather, the client remits the consideration for the services to a company, trust or other non-individual entity. That entity then distributes the income to the individual’s SMSF, purportedly as a return on an investment in the entity. The SMSF treats the income as subject to concessional tax (15%) or as exempt pension income.
The Commissioner considers that such arrangements may be ineffective at alienating income such that it remains assessable income of the individual under s 6-5 of the ITAA 1997 or as ‘personal services income’ (under Divisions 84 – 87 of the ITAA 1997). The amounts received by the SMSF may also constitute non-arm’s length income (NALI) of the SMSF under s 295-550 of the ITAA 1997 (taxable at 47%). The Tax Office said it is reviewing a number of cases and will be engaging with those taxpayers over the coming months.