In an interesting development, the ATO has released a warning in relation to SMSFs entering into gift and loan back arrangements. In what appears to be a response to a particular arrangement being marketed as a “vestey trust”, the ATO has raised concerns that such arrangements may cause the SMSF trustee to breach the super laws.

Broadly, a gift and loan back arrangement typically involves a person or entity at risk gifting an amount to a protected entity (eg a discretionary trust). The protected entity then loans the amount back to the risk individual who in turn grants security back to the protected entity. While the gift and loan strategy is a useful tool for asset protection outside of super, as the ATO points out, it does not make a sense for an SMSF which is generally not subject to risks.

That said, SMSFs can be subject to some risks in relation to their investments (eg property development) or from ATO or regulatory body penalties and penalty taxes. Therefore, where the SMSF is potentially exposed to some risk, then more appropriate asset protection strategies could be considered, including stand alone SMSFs for riskier investments, the use of (appropriately structured) entities such as companies and trusts and appropriate insurances.

Phil Broderick
Principal
M +61 419 512 801 | T +61 3 9611 0163
E: pbroderick@sladen.com.au

Jan Harnischmacher
Lawyer
T +61 3 9611 0158
E jharnischmacher@sladen.com.au