ATO Examines SMSF Use Of Negotiable Instruments

by Mary Swire, Tax-News.com, Hong Kong

21 May 2009

The Australian Taxation Office (ATO) has issued a taxpayer alert warning trustees of self-managed super funds (SMSF) to be cautious of arrangements involving the non-commercial use of negotiable instruments, such as promissory notes, in an attempt to gain income tax and super benefits.

The arrangements involve a trustee or member issuing a promissory note, cheque or other negotiable instrument which is passed between trustees and members with no exchange of money or assets ever taking place, or the exchange may be delayed intentionally.

Tax Commissioner Michael D’Ascenzo said the Tax Office is concerned trustees may be lured into these arrangements without understanding the potential super and income tax implications.

“We are concerned with the non-commercial use of promissory notes to avoid the need to liquidate assets in order to change the timing of transactions, or to obtain tax advantages that are not available in the circumstances,” he explained, adding:

“In particular we are concerned taxpayers may be lead into these non-commercial transactions hoping to take advantage of the existing super concessional contributions caps in view of the government’s Budget announcement to halve the existing concessional contributions caps from July 1, 2009.”

The alert doesn’t apply to the use of negotiable instruments involving real movements of funds or assets through genuine withdrawal and re-contribution strategies. However, it does cover artificial and contrived arrangements including ‘round robin’ transactions.

People wanting information about this taxpayer alert have been advised to contact the Tax Office directly.

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