The ATO has declared that it will be targeting profit shifting into SMSFs and the calculation of tax losses in funds, citing these as two of the main issues of concern within the self-managed superannuation sector.

The ATO has identified non-arm’s length income as a major income-related tax risk for the sector, and a new compliance program will target income returns (eg: dividends and trust distributions) on private entity investments that occur at rates that are unusual compared with the market value of the investment. Where relevant, this approach will scrutinise layers of entities that the profits pass through to determine whether the fund’s income is arm’s length.

In terms of the calculation of tax losses, the ATO has stressed that trustees and tax agents need to ensure these losses are calculated correctly. Funds in pension phase must be particularly careful when they calculate their carry forward losses – in many cases a tax loss in a pension phase fund will not be able to be applied against assessable income in a future year.

The most common breach among SMSF members continues to be loans and financial assistance to members, accounting for 21.5% of the auditor contravention reports received by the ATO. The ATO is reminding trustees of the importance of contacting the ATO to disclose breaches of superannuation or tax laws before they are detected by the ATO’s data intelligence, as the outcome for the trustees and fund is generally far better with voluntary disclosure.