The ATO is pursuing a case involving hundreds of "bungled" limited recourse borrowing arrangements (LRBAs) and clients who were inappropriately advised to invest in property via SMSF structures.
The tax office is “progressing a large number of cases where [individuals have] been encouraged into property investment using an SMSF structure”, said ATO director of superannuation Howard Dickinson at the Chartered Accountants Australia and New Zealand conference in Sydney this week.
“In one particular case, we’re talking about hundreds of clients and in all of them, the LRBAs have been bungled to the point where they’re not appropriate and can’t be properly rectified, so there are some real significant outcomes,” said Mr Dickinson.
In one case involving a significant number of funds, individuals were cold called, persuaded to invest in property and then encouraged to set up an SMSF to facilitate the purchase.
“They agreed to roll over their super funds into an SMSF set up by this party and they used that money to set up a deposit for the property,” he said.
“However, because the nature of the property wasn’t suitable for this sort of an arrangement, no bank would cover them with an LRBA.”
In reality Mr Dickinson said, it turned out that these individuals were just getting a loan at a personal level.
“There’s no limit on the recourse so therefore we suddenly have the property in theory sitting in an SMSF, the loan sitting outside of an SMSF and in a number of these cases they’re in a position where there’s no way in the world they’d ever get an LRBA,” he said.
“In fact, the only reason the banks have gone anywhere near it is because of personal guarantees.”
Since the properties were located in flood plains, Mr Dickinson said the SMSF trustees were also unable to obtain insurance.
“In a large number of these cases it’s all been done in a one-stop shop, so they walk into the property person who walks them into the accountant who walks them into the financial broker – it’s all done in the one house. The person has no idea that they haven’t set it up correctly,” he said.
Mr Dickinson said while he could not disclose exact details of the cases at this point, the ATO intends to make the results clearly available as soon as it can speak publicly on the matter.
“We don’t want people getting tied up in these things and we don’t want people putting their super at risk in these spaces,” he said.