Thursday, July 28, 2016

Tax Office warns retirees on dodgy tax avoidance schemes

Prospective retirees are being warned they could be risking their nest eggs by investing in illegal retirement schemes designed to dodge tax.

The Australian Tax Office is working to shut down what it calls a "significant" number of schemes that lure investors with tactics to minimise or avoid legitimate tax through complex "paper shuffling".

The ATO says the schemes are "artificially contrived and complex" and are usually connected with the management of a self funded superannuation fund or SMSF.

Deputy Tax Commissioner Michael Cranston told AM that taxpayers who adopt illegal schemes face "severe penalties" which could amount to 47 percent of retirement savings.

"What we're seeing is some taxpayers getting close to retirement and moving some of their businesses into these self managed super funds," Mr Cranston said.

"Then when they go into retirement phase they draw out the dividends and there is no tax. They are things they are not allowed under the law.

"If things are too good to be true, they're generally not right."

The ATO is targeting three schemes including the tactic of "dividend stripping" where dividends from shares in a private company are channelled through an SMSF to avoid tax.

In addition, the ATO is ramping up surveillance of "non commercial recourse borrowing arrangements" and "personal services income" arrangements that break tax law.

However, Mr Cranston says while prospective retirees are looking at ways to boost their retirement nest egg there is no relation to the federal government's proposed changes to superannuation tax concessions.

"This has really got nothing to do with government discussions around superannuation policy," Mr Cranston said.

The ATO has launched an educational program to alert investors and to help weed out promoters of what it calls "dodgy schemes".

"That's if somebody has tried to structure your scheme differently, if it does look a bit artificial, or things that you don't have to pay tax on that you don't have to any more.

"They're signals that you should check with another accountant or ask the ATO."

In addition to penalties, Mr Cranston says fines could amount to 47 percent of the earnings of any illegal scheme.