ATO warns SMSFs on tricky trust deals

The Australian Taxation Office (ATO) has warned self-managed super fund (SMSF) trustees and private companies that if they invest in purportedly unrelated trusts with the intention of making funds available for lending to members or shareholders they could face substantial penalties.

“SMSFs are not allowed to use their funds to provide financial assistance to members or relatives of members,” Tax Commissioner Michael D’Ascenzo said in an ATO statement.

“Attempting to do so by channelling it through a purportedly unrelated trust puts the fund at risk of being made non-compliant and taxed at 45 per cent.”

Individual trustees could face fines of up to $220,000 and/or jail terms of up to five years, and corporate trustees could face fines of up to $1.1 million, according to the ATO.

The same restrictions apply to private companies lending money through a trust to a shareholder, which could be considered a dividend, D’Ascenzo said.

Individual promoters of such schemes face penalties of $550,000 and body corporates of up to $2.7 million, or in both cases up to twice the amount received, whichever is greater.

“Taxpayers who fail to correctly report such dividends face significant penalties and interest charges,” D’Ascenzo said.