The ATO has announced that it is extending the deadline it had set for SMSF trustees to disclose any personal services income that has been diverted to their fund. The concern for the ATO, as outlined in a taxpayer alert (TA2016/6) it issued last year, is the minimising or avoidance of tax obligations that can result.
Under the arrangements concerned, the ATO says an individual “performs a service for a client” and does not receive any or adequate remuneration for these services provided. “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 ATO explains. “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 worry for the ATO is that the outcome of such arrangements is that the income is either exempt from tax or taxed concessionally rather than being subject to tax at the individual’s marginal rate.
The deadline for making a voluntary disclosure, and so avoiding administrative penalties, has been extended to April 30, 2017.
The ATO affirms however that shortfall interest charges may still apply, and that trustees currently subject to other compliance action may not qualify for any consideration.
This latest extension of a deadline for SMSF compliance comes after additional time had been granted for trustees to ensure LRBAs were made on terms consistent with arm’s length dealings. The new LRBA review deadline passed on January 31.
Given the hectic superannuation environment, with several extensive reforms enacted since November 2016, the ATO admits that it is aware that trustees may have been focused on issues such as LRBAs or the latest legislative changes. Therefore, as people may not have had sufficient time to consider the voluntary disclosure offer for personal services income, the ATO says it has extended the opportunity to contact it without facing administrative penalties.
“If any of your clients have entered into an arrangement as described in TA2016/6 or a similar arrangement, please contact us so we can work with your client to resolve any issues in a timely manner, and minimise the impact on the individual and the fund,” the ATO says.
“We recognise the importance of preserving the assets which SMSFs hold to fund retirement incomes, so issues affecting the SMSF will be addressed on a case-by-case basis. 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.”