Diverting Personal Services Income to SMSFs

The ATO is currently reviewing arrangements where individuals (at, or approaching, retirement age) purport to divert their personal services income to an SMSF, so that the income is taxed concessionally (or exempt from tax) in the fund, rather than being subject to tax at the individual’s margin rate.

These arrangements normally involve the individual’s income being paid to another entity (e.g., a company) which then makes distributions to the SMSF as a ‘return on investment’ (e.g., dividends, where the SMSF holds shares in the relevant company).

The ATO advises a any people that have entered into such an arrangement to contact the ATO by 30 April 2017, so they can work with them to resolve any issues in a timely manner, and minimise the impact on the individual and the fund.

Individuals and trustees who are not currently subject to ATO compliance action, and who come forward will have administrative penalties remitted in full (although interest may still be payable on any tax collected later than it should have been).