“Recently, there has been an increase in schemes targeting people who are actively planning for retirement, as well as targeting the financial planners and advisers who specialise in providing self-managed super fund (SMSF) advice to self-funded retirees,” the ATO said.

“These types of schemes encourage individuals to channel money inappropriately through their SMSF, and are referred to as ‘retirement planning schemes’.”

These retirement planning schemes have common features and they usually are artificially contrived and complex. It is often SMSF members who are targeted and encouraged to use their SMSF as part of the scheme, according to the ATO.

“It involves a lot of paper shuffling and is designed to leave the taxpayer with minimal or zero tax, or even a tax refund, and aim to give a present-day tax benefit by adopting the arrangement,” the Tax Office said.

The main concern, according to the ATO, is that these schemes do not comply with the tax and super laws and can expose SMSFs to significant liabilities and penalties. 

“While planning for retirement makes good sense, it must be done in accordance with the law so that the tax system is fair for all,” the ATO said.

“Retirement planning schemes are often driven by promoters who are out to make a quick return and don’t necessarily have people’s best interests at heart.

“If you’re involved in an illegal scheme identified by us, you may incur severe penalties under the tax and super laws; you risk losing your retirement nest egg and also your rights as a trustee to manage and operate an SMSF.”

The ATO had previously flagged increasingly common schemes it had been monitoring over the years which included arrangements around related-party property development ventures, granting legal life interest over commercial property to SMSFs, dividend stripping, loopholes around limited recourse borrowing arrangements, and utilisation of personal services income.

Along with the new indexation of contributions caps set to kick off soon, the ATO stated it will be keeping an eye out for any developments that may arise as a result, with a common arrangement to utilise multiple SMSFs.

“While the establishment of multiple SMSFs by itself does not give rise to compliance issues, we will examine the circumstances of those cases where it appears that the establishment of another SMSF has been a precursor to subsequent behaviour intended to manipulate tax outcomes including switching each of the respective funds between accumulation and retirement phase,” the ATO said.

The ATO said they will also watch out for the use of reserves to circumvent the restrictions and limits which apply as a result of the total super balance and transfer balance cap measures. 

“While many of the existing reserves in SMSFs have arisen legitimately in the context of legacy pensions that are no longer available, the ATO does consider there are very limited circumstances where it is appropriate for new reserves to be established and maintained in SMSFs,” the ATO said.

“The establishment or maintenance of reserves by SMSFs beyond these very limited circumstances may indicate an inappropriate use as part of a broader strategy to circumvent the new limits and restrictions under the recent super changes. These structures will attract our scrutiny.

“Unfortunately, there are some people who want to target those approaching retirement, with schemes designed solely to help retirees and prospective retirees to avoid paying tax by channelling income through a self-managed super fund (SMSF).”

Updated guidance campaign 

The ATO urged financial planners, accountants and other advisers who provide wealth management and retirement advice for SMSFs to think carefully about the dangers of retirement planning schemes, and act in the best interest of their clients.

“Help keep your clients’ financial future safe by being wise to the dangers of risky retirement planning schemes and advising them of the potential consequences of tax avoidance schemes. If in doubt, seek a second opinion from a professional colleague or another trusted expert,” the ATO said.

“Remind your clients that the penalties are substantial for those who deliberately get involved in illegal retirement planning schemes.

“The consequences may be financial through the imposition of higher default taxes and penalties, which will drain your clients’ retirement nest egg. Individuals may also lose their right to be a trustee of their own super fund.

“Where intermediaries are found to have been encouraging clients to adopt aggressive tax planning arrangements, we will consider applying the promoter penalty laws. And where tax agents are concerned, we will consider referring the matter to the Tax Practitioners Board.”

Through the updated Super Scheme Smart campaign, the ATO said they will be investing time and resources to provide information to those involved in retirement planning. 

“We seek to encourage compliance in a co-operative way and have introduced Super Scheme Smart, an initiative to help inform you about the dangers of risky retirement planning schemes. This will give you guidance on how to identify these types of schemes and where to get help,” the Tax Office said.

“We’re also giving advice to taxpayers about the issues they may encounter when embarking on their retirement planning journey.

“The key priorities for our Super Scheme Smart initiative include helping taxpayers to become smart about illegal retirement planning schemes and to be aware of what to look out for; and where to go for help assisting financial advisers, planners and other advisers to help their clients protect their financial future.

“We have dedicated staff investigating retirement planning schemes and they are engaging with those who are already involved, and looking out for others who might be.”

In conclusion, the ATO said it has recently been successful in prosecuting the promoters of other aggressive tax planning schemes, and will start targeting promoters of retirement planning schemes. 

“Promoters may face litigation under promoter penalty legislation and may incur a significant financial penalty which is over and above the fees they have earned from promoting the scheme,” the Tax Office said.