In media release No 2010/32, issued 21 October 2010, the ATO warned self managed super funds (SMSFs) and private companies not to invest in trusts with the intention of making funds available for lending to members or shareholders.
“SMSFs are not allowed to use their funds to provide financial assistance to members or relatives of members,” the Commissioner, Michael D’Ascenzo, said. “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%.”
The ATO said that trustees of super funds who provide financial assistance in this way face penalties of up to $220,000 and/or jail terms of up to 5 years for individuals. Corporate trustees face fines of up to $1.1 million.
In relation to private companies, Mr D'Ascenzo said: "Lending money through a trust to a shareholder or shareholder associate may be considered a dividend. Taxpayers who fail to correctly report such dividends face significant penalties and interest charges."
The media release coincided with the issue of 2 Taxpayer Alerts:
- TA 2010/5 entitled "The use of an unrelated trust to circumvent superannuation lending restrictions". The Taxpayer Alert describes an arrangement where a self-managed superannuation fund (SMSF) invests funds in an unrelated trust. The trust then on lends the funds to an SMSF member or a relative of the member.
- TA 2010/6 entitled "The use of an unrelated trust to access funds of a private company in an attempt to circumvent Division 7A". The Taxpayer Alert describes an arrangement where a private company invests funds in an unrelated trust. The trust then on lends the funds to a shareholder, or an associate of a shareholder, of the private company.
For an ATO factsheet entitled "Evading tax and super laws by using unrelated trusts" dealing with TA 2010/5, go here