The Australian Tax Office (ATO) is cautioning members of the public and SMSF trustees from engaging in illegal early release schemes. The schemes involve channelling super funds or assets into SMSFs in an attempt to grant people illegal access to their retirement benefits before they have qualified to do so. People will often then go on to use the funds for personal use like paying credit card debt or even going on holiday.
When super is illegally accessed, there can be heavy financial penalties for all parties involved. The ATO is warning SMSF trustees to only provide access to benefits when they meet the standard legal requirements of either having reached the preservation age and retired or having turned 65 years of age while still working.
If super is accessed illegally outside of these parameters, it could result in the individual losing some or all of their retirement savings, besides other financial penalties including additional income tax and interest. The illegally accessed monies will be considered as income in tax returns, hence the additional income tax. Even if the illegally accessed funds are returned to the fund, this can only be considered a new contribution. Identity theft that could lead to all a person’s super being stolen is another possibility.
SMSF trustees that engage in this activity also risk being disqualified as trustees and having their funds wound up. Their names would also be added to the Commonwealth Government Notices Gazette and trustee disqualification register. This would result in damage to their finances, personal and professional reputation.
Anyone that is approached with a proposal to set up a SMSF or to participate in any early release scheme, they are being advised to first check that the person they are dealing with has a financial license under the ASIC financial register. Where there is any doubt, seeking a second opinion from another licensed adviser who is independent of the scheme is recommended.
The ATO notes that many of the schemes feature contrived or artificial arrangements with complex structures around new or existing SMSFs. They also include a range of unnecessary steps and transactions. They aim to enable the taxpayer to avoid paying taxes, gain illegal tax refunds and even bring forward tax benefits.
Property purchase schemes have been recently highlighted for targeting desperate first-time home buyers. The schemes may appear legitimate with claims of wanting to help people buy their first homes but remain in contravention of super laws.
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