While most readers won’t fall into this group, it still makes for fascinating analysis. It also adds flavour to other little nuggets of information trickled out by the ATO over time.
The $100 million funds
For instance, in 2016 the ATO revealed six funds hold more than $100 million each. We don’t know who they are (due to privacy rules) but I’d guess we would recognise the surnames of those who have been on the AFR Rich List the longest (it takes time to contribute to your SMSF).
The ATO also revealed in 2018 that 5600 SMSF members have a balance of more than $5 million (compared to only 420 APRA fund members with more than $5 million). So we have some understanding of the top end of the SMSF market.
The SMSF Top 100 list was one of the fascinating insights revealed by Dana Fleming, the ATO assistant commissioner for self managed superannuation, in a recent speech. These are facts the ATO knows intimately but for us it is a rare glimpse of the ATO’s more detailed, confidential data.
For 20 years now the ATO has regulated SMSFs, so they know more about SMSFs than anyone. On the few occasions the ATO speaks publicly, I heed the advice from the TV show ‘Allo ‘Allo: “Listen very carefully, I shall say zis only once.”
The ATO announced that it is using its SMSF Top 100 list to target aggressive tax planning arrangements. Working in a co-ordinated way, the private wealth and the SMSF areas of the ATO are ensuring wealthy individuals are adhering to all the rules in their entire tax affairs.
ATO deep dive
Of the SMSF top 100, the ATO has identified 35 funds deserving a deeper analysis of their activities. Of these, the ATO private wealth area identified 13 funds with members who were taxpayers of interest based on their overall tax affairs; while 16 reported contraventions in their SMSF audit.
Others are targeted due to their use of Limited Recourse Borrowing Arrangements (LRBA); their use of non-arm’s length arrangements; and, most interestingly, what Ms Fleming termed funds with “rapid and excessive asset growth rates” of 10 per cent over the past four years.
Remember, we are talking about SMSFs with an average fund balance of $79 million so “excessive asset growth rates” will involve significant sums. While there can be good reasons for rapid growth, the ATO lists some factors that could be behind “excessive” growth.
Running a property development business in the SMSF is one of the ATO’s red flags. Another is revaluation of assets (listed and unlisted securities). It is difficult to guess what the problem may be with revaluing listed investments (they are marked-to-market, which should be fairly objective) but the subjective valuing of unlisted investments can give greater scope for creative accounting.
Another is the use of “LRBAs to acquire commercial properties sitting outside the SMSF but within the group,” according to Ms Fleming. For example, this could cover a property unit trust structure.
The ATO is coy on revealing more on their excessive asset growth rates analysis as this is a live project into wealthy taxpayers who retain excellent lawyers. Apparently “several [have been] identified for escalation to review or audit”, so watch this space.
If you haven’t made the Top 100 list yet, you should still be mindful of the SMSF areas of concern raised by the ATO – LRBAs; property development; unlisted investments; and non-arm’s length transactions.
General advice only. Tim Mackay is principal of Quantum Financial.
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