ATO raises alarm on asset protection scheme for SMSFs
The ATO is concerned about SMSFs entering into certain asset protection arrangements that involve a ‘Vestey Trust’.
.
In a recent online update, the ATO said it is concerned about asset protection arrangements that claim to protect SMSF assets from creditors by mortgaging them to an asset protection trust, commonly referred to as a ‘Vestey Trust’.
The ATO explained that a Vestey Trust is a discretionary trust established by deed.
“It is claimed that the trust is set up to acquire the equity in the SMSF’s assets through an equitable mortgage,” the Tax Office stated.
“The equitable mortgage is supported by the execution of a promissory note by the SMSF to the Vestey Trust. This recognises a debt is owed by the SMSF to the Vestey Trust. The mortgage is also supported by a caveat by the Vestey Trust over the SMSF’s real property.”
The arrangement can also allow a transfer of the SMSF’s cash holdings to a bank account in the name of the Vestey Trust.
The ATO advised SMSF trustees that the arrangement is unnecessary because the super system already protects SMSF assets from creditors.
It also warned SMSFs that the arrangement is a compliance risk and may contravene one or more super laws.
“For example, it may result in the giving of a ‘charge’ over, or in relation to, a fund asset by the SMSF trustee or involve the borrowing of money by the SMSF trustee,” the ATO cautioned.
“[It may also] expose fund assets to unnecessary risk if it’s not clear who owns them or cause the fund to be maintained in a way that doesn’t comply with the sole purpose test.”
The ATO also reminded trustees that SMSF money cannot be used for costs related to asset protection arrangements entered into by members to protect their personal or business assets because these expenses are not incurred in running the SMSF.
“If the arrangement contravenes the super laws, penalties may apply,” it cautioned.
The ATO is encouraging any trustees that have become involved in a scheme like this to make a voluntary disclosure.
“We will take this into account when determining our compliance action,” it said.
Miranda Brownlee
05 January 2023
smsfadviser.com
Latest Newsletters
Hot Issues
- Getting to a higher level of financial literacy in Australia
- What is the future of advice and how far off is superannuation 2.0?
- Investment and economic outlook, April 2024
- Australia’s debt service ratio ‘extraordinary’: CBA
- Connecting an adviser with your children
- ACCC scam report
- The Shortest-reigning Monarchs in History
- ATO warns trustees about increasing crypto scams
- Aged care report goes to the heart of Australia’s tax debate
- Removed super no longer protected from creditors: court
- ATO investigating 16.5k SMSFs over valuation compliance
- The 2025 Financial Year Tax & Super Changes You Need to Know!
- Investment and economic outlook, March 2024
- The compounding benefits from reinvesting dividends
- Three things to consider when switching your super
- Oldest Buildings in the World.
- Illegal access nets $637 million
- Trustee decisions are at their own discretion: expert
- Regular reviews and safekeeping of documents vital: expert
- Latest stats back up research into SMSF longevity and returns: educator
- Investment and economic outlook, February 2024
- Planning financially for a career break
- Could your SMSF do with more diversification?
- Countries producing the most solar power by gigawatt hours
- Labor tweaks stage 3 tax cuts to make room for ‘middle Australia’
- Quarterly reporting regime means communication now paramount: expert
- Plan now to take advantage of 5-year carry forward rule: expert
- Why investors are firmly focused on interest rates
- Super literacy low for cash-strapped
- Four timeless principles for investing success
- Investment and economic outlook, January 2024
Article archive
- January - March 2024
- October - December 2023
- July - September 2023
- April - June 2023
- January - March 2023
- October - December 2022
- July - September 2022
- April - June 2022
- January - March 2022
- October - December 2021
- July - September 2021
- April - June 2021
- January - March 2021
- October - December 2020
- July - September 2020
- April - June 2020
- January - March 2020
- October - December 2019
- July - September 2019
- April - June 2019
- January - March 2019
- October - December 2018
- July - September 2018
- April - June 2018
- January - March 2018
- October - December 2017
- July - September 2017
- April - June 2017
- January - March 2017
- October - December 2016
- July - September 2016
- April - June 2016
- January - March 2016
- October - December 2015
- July - September 2015
- April - June 2015
January - March 2023 archive
- China’s economic rebound lowers the odds of a global recession
- No plans to extend NALI compliance relief, says ATO
- Why most investors want human advice
- Comparison: How Long It Takes To Decompose?
- Contribution caps to stay the same for 2023–24 year
- Three simple steps for financial wellness
- Draft super objective to ‘protect super from interference’
- Beating back inflation, but at what cost?
- Why superannuation fund fees matter
- 100 Most Influential people in the world.
- TBC set for double indexation from 1 July
- ATO issues fresh warning on illegal early access schemes
- When to be proactive about your portfolio
- Digital advice firm optimistic QAR will ‘reset financial advice’
- 2022 by the numbers
- ATO raises alarm on asset protection scheme for SMSFs
- Downsizer age reduction now in force
- SMSFs cautioned on ‘strict conditions’ with SMSF lending
- Countries with the highest GDP per capita between 1800-2040
- Transitioning into retirement: What you should know
- Auditor flags surprising traps with e-signatures and SMSFs
- A review of the last two decades in investing