David Busoli, principal of SMSF Alliance, said although it doesn’t happen very often, there are occasions when an adviser, accountant or auditor will encounter situations where the member of an SMSF has received shares or options in lieu of payment for services they’ve provided.
“Generally it happens because the trustees or members think it is a good idea and if there has been advice given from an accountant or adviser,” Mr Busoli said.
“But when it does happen, it is often difficult to unravel because by the time we see it, it has been in place for a couple of years.
“The easiest way to resolve the issue is to get the offending asset out of the fund.”
He said the ‘payment’ is often shares in an associated business, or interest in an enterprise in lieu of payment.
“Generally, the only feasible solution is to get the asset out of the fund and it usually means the member buying it from the fund and that will have consequences,” Mr Busoli continued.
“That could be because they have to find the cash to pay for it or because it has been done on a non-arm’s length basis and the tax on that could be quite high so any profit they have made will be impacted.”
Mr Busoli said the suspect payment is usually found by the ATO after a report from an auditor who is duty-bound to flag it.
Once the ATO has been alerted to the payment it triggers a number of unfortunate consequences.
The ATO’s position is that:
- The general anti-avoidance rules may apply
- The transaction may breach the sole purpose test
- The asset acquired might be an excluded asset – particularly if it is a ‘right’ to options or shares or they are unlisted.
- The asset may be subject to NALI and be taxed at 45 per cent on both its income and growth.
- Administrative penalties might apply.
“An SMSF provides significant opportunity and flexibility but is still subject to basic compliance rules,” Mr Busoli said.
“If a proposed course of action seems to bend those rules it should be checked out thoroughly, possibly to the extent of a private binding ruling.”
