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Asset protection umbrella and SMSF

The ATO’s concern


The ATO has a few concerns in this area – and it is important to be equally concerned – if these guys are getting their nose out of joint for something.


Me and advising on SMSF’s?


I am not sure I can even advise on much of this. It almost feels like a lawyer should be blogging about it. So, as usual, use my content to get aware that these ATO concerns exist. This is not advice anyway. Then, go and get proper advice from a pro! Concerning the asset protection arrangements, the Australian Taxation Office (ATO) is particularly focused on those that purport to shield Self-Managed Superannuation Fund (SMSF) assets from creditors. This is often achieved by placing these assets under the umbrella of an asset protection trust, commonly known as a ‘Vestey Trust.’


Vestey me this, Vestey me that 



A Vestey Trust is a discretionary trust that is formally established through a legal deed. The premise behind this arrangement is the assertion that the trust is created to obtain ownership equity in the assets held within the SMSF, primarily through the establishment of an equitable mortgage.


This equitable mortgage arrangement gains validity through the execution of a promissory note, where the SMSF acknowledges a debt owed to the Vestey Trust. Furthermore, the mortgage is reinforced by a caveat placed by the Vestey Trust on the SMSF’s real estate holdings. Additionally, this arrangement may facilitate the transfer of the SMSF’s cash reserves into a bank account held in the name of the Vestey Trust.




Why is the ATO concerned? 




The reasons why certain asset protection schemes raise concerns for the Australian Taxation Office (ATO) are likely:


– Redundancy of the Arrangement: Firstly, these schemes are viewed as unnecessary because the superannuation system inherently provides safeguards to protect Self-Managed Superannuation Fund (SMSF) assets from potential creditors. Therefore, the introduction of additional asset protection mechanisms is deemed superfluous.


– Compliance Risks and Potential Legal Contraventions: Secondly, these schemes pose a compliance risk and may potentially violate one or more superannuation laws.

For instance, they may:

-Result in the SMSF trustee granting a ‘charge’ over, or related to, an asset within the fund.

-Involve the SMSF trustee engaging in ‘borrowing’ of money, which can conflict with superannuation regulations.

-Expose fund assets to unwarranted risk by obscuring their ownership, making it unclear who holds legal title.



-Cause the SMSF to be managed in a manner that does not align with the sole purpose test, which is a fundamental criterion for the compliance of superannuation funds.


 These concerns underscore the potential legal and regulatory issues associated with asset protection schemes. They serve as a basis for the ATO’s vigilance and scrutiny in this area.




 SMSF’s and expenses –  not allowed


Lastly, it’s important to note that Self-Managed Superannuation Fund (SMSF) funds cannot be utilized to cover expenses associated with asset protection arrangements entered into by SMSF members to safeguard their personal or business assets. This is because such expenses are not considered part of the operational costs incurred in managing the SMSF.


In cases where these arrangements run afoul of superannuation laws, penalties may be imposed as a consequence.


For trustees who find themselves involved in such schemes, it is advisable to make a voluntary disclosure to the Australian Taxation Office (ATO). Doing so allows the ATO to consider this disclosure when determining the appropriate course of compliance action. This proactive approach can be instrumental in addressing any potential breaches. This can ensure that the SMSF remains in alignment with regulatory requirements.




In conclusion..


An interesting space to keep an eye on for sure. Specially if the ATO will be issuing any updates on their approach and philosophy here.


As usual, please don’t just read our stuff (or the ATO’s) and think you can apply it to your situation. You need to talk to an accountant so that the advice can be customised to your situation properly. If you need any help, please don’t hesitate to contact us.


If you need tax help, please don’t be a stranger.


Contact us on 1800 672 670.