As foreshadowed by SMSF Adviser earlier this month, the ATO is reviewing arrangements where individuals divert their personal services income to a SMSF to minimise or avoid tax.

These types of arrangements are typically used by SMSF members at or approaching retirement age as income received by the SMSF trustee is concessionally taxed or treated as exempt current pension income of an SMSF in pension phase, the ATO said.

“In other words, the SMSF member purportedly avoids paying tax on their income at the marginal tax rate,” said deputy commissioner James O’Halloran.

“Under these arrangements an individual performs services for a client for which the individual does not directly receive adequate remuneration for the service provided. Instead the client refers remuneration for the service to a company, trust or other non-individual entity. The entity then distributes the income to a SMSF, of which the individual is a member, as a return on investment,” Mr O’Halloran said.

“We are currently reviewing a number of SMSFs that may be involved in this arrangement and will continue to engage directly with taxpayers and their advisors where we have concerns,” he said.

The ATO encouraged taxpayers who have entered into these types of arrangements to seek a private ruling or make a voluntary disclosure to the ATO.