The Australian Tax Office has warned trustees of self-managed superannuation funds (SMSFs) to be cautious when investing in property.
Acting ATO Commissioner Bruce Quigley said he is concerned people are using their SMSFs to invest in property without fully understanding their obligations under the law.
He added that this confusion was allowing some operators to take advantage of certain types of arrangements.
“We have observed that some arrangements are deliberately entered into to get around the law, which can result in the fund’s trustees being disqualified, facing civil penalties or even facing criminal charges,” said Quigley.
“Those marketing properties to SMSF trustees as part of such arrangements could be referred to Australian Security and Investment Commission (ASIC).
“The fine details are important and trustees need to be sure that property is the right investment for their SMSFs and that the arrangements are legal.”
A goldmine for opportunistic marketers
This echoes the general warning issued last month by David Hasib, director of financial planning at accounting, property and wealth advisory group, Chan and Naylor. He argued that the SMSF industry is in danger of becoming a lawless frontier if rogue advisers and opportunist marketers are allowed to continue touting for business.
Specifically, Hasib believes that SMSFs “have become a goldmine for opportunistic marketers, highlighting serious and potentially devastating loopholes in the regulatory system”.
“Little to no attention has been cast over the wider industry, including those developing the products, the many underqualified advisers or even the growing number of promoters with no qualifications to bear – all of whom share responsibility for creating an environment of risky decision-making which is placing increasing numbers of investors in dire financial straits,” he said.
Responsibility for compliance
According to Quigley, the ATO is seeing instances where holding trusts have not even been established at the time the contracts to acquire are signed.
In other instances, the title of the property is held in the individual’s name rather than the trustee of the holding trust. Another common mistake is gearing in a related unit trust, which is not allowed under the law.
“Some of these arrangements, if structured incorrectly, cannot simply be restructured or rectified. The only option may be to unwind the arrangement, which could involve forced sale of assets at an inconvenient time. This could be very expensive for the fund with potential stamp duty and tax consequences,” he said.
“I urge trustees to get reliable, independent advice when making investment decisions and to obtain advice from us if they are contemplating entering into these sorts of arrangements. The responsibility for ensuring their SMSFs comply with the law rests with them.”
