ATO points to SMSF dividend stripping

Some self-managed superannuation fund (SMSF) trustees are being required to repay franking credits and to forego the benefit of future franking credits where they have been identified as being guilty of dividend stripping, according to the Australian Taxation Office (ATO).

ATO deputy commissioner, superannuation, James O’Halloran told the recent SMSF Expo that, to date this financial year, the ATO had disqualified 214 trustees with the majority of the disqualifications for illegal early release of funds and loans to members.

He said 67 trustees came to the ATO’s attention as part of its pre-SMSF registration checks and early intervention cases, while another 50 were disqualified for unrectified contraventions reported through Auditor Contravention Reports (ACRs).

O’Halloran said the remaining 48 trustees were disqualified for allowing early access of benefits to members and providing loans to members, while another eight trustees were disqualified for taking part in tax planning arrangements such as dividend stripping.

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He said that, by comparison, in all of 2016-17 the ATO disqualified 333 individual trustees, of whom 150 were disqualified after being identified through pre-registration checks and early intervention fund cases, while a further 128 were disqualified as a result of inaction over an unrectified contravention reported by the fund’s approved auditor through an auditor contravention report, and 55 trustees were disqualified as a result of self-disclosing breaches.

O’Halloran described dividend stripping as having been a serious concern for the ATO over the past two years, during which it had progressed 61 dividend-stripping cases involving SMSFs where the arrangements were typically used to move large sums of money into the concessionally taxed super environment.

“In some cases, trustees have been removed and trustees have agreed to roll their assets into an APRA-regulated fund. From an income tax perspective, trustees are being required to repay franking credits and forego the benefit of future franking credits,” he said.