Preparing for retirement in a day and age when gold watches and generous pensions are not what they once were, and the chances of living longer on a paltry income are greater, it’s harder for those trying to save for their Golden Years. Now the Australian Tax Office has discovered that seniors investing in property to boost their pensions, are falling prey to tax traps. Baxton Property Management in Hobart joins the ATO in calling for caution when considering property investment schemes, especially when they involve Self-Managed Super Funds, considered by many to be the gold standard of retirement options.
What is a SMSF?
A self-managed super fund (SMSF) is a superannuation trust structure aimed at helping Australians save money for their retirement. Unlike other funds, it gives the member full control of the final outcome and any investments made along the way, including property purchases. This control comes from the fact that all SMSF members automatically become trustees and can therefore run the fund for their own benefit.
Taking the Gold Out of Retirement
Red flags should show when a smooth-talking spruiker offers what seems like the ideal way to boost retirement savings by “legally” reducing, rerouting, delaying or otherwise altering the way and amount of tax seniors need to be paid. And SMSF schemes have become a popular playground for those looking to scam savers out of their retirement funds by channelling money “inappropriately” through the SMSF.
However, their tactics have now come to the attention of the ATO, and the tax office is determined to stamp out those schemes which are tempting some unsuspecting Australians into schemes that operate on nothing more than tax dodges. And they won’t be doing that with a gentle warning, or a sympathetic ear for excuses.
The ATO has warned taxpayers to beware of these shady investment schemes, including those which involve investment property deals which promise ways for savers to increase their retirement fund. According to the ATO, far from increasing savings, these schemes can result in big losses of existing savings and a hefty bill for unpaid taxes. The end result could certainly take the golden description out of seniors’ final years and replace it with a very dark outlook.
Seniors are advised to look out for no-risk guarantees, and over-zealous referrals to consult only one particular adviser claimed to have specific knowledge, while at the same time recommending the seniors keep the arrangement private. Another giveaway is failure to produce a prospectus or product disclosure statement.
When it comes to financing, the biggest red flag should be flapping in the wind when a scheme looks at funding investments primarily through tax deductions, or offers non-recourse loans that won’t need to be repaid if the investment goes sour. But there are also a number of other warning signs, including a round robin system which has the money passing through a circle of entities before returning to its original starting point.
Then there are an array of methods to move income around, including what comes in from an investment property bought by the SMSF in the hopes of a sizeable ROI. Changing the nature of the rental or other income, and converting private expenses into business ones, increasing deductions, and a number of other ploys are also used to change the amount of tax paid or claimed against income tax.
Baxton Property Management stresses the need for would-be property investors to be on the alert for these schemes, particularly when they involve the lifetime savings of those who had the foresight to plan for their retirement years. While all taxpayers are entitled to pay no more tax than they need to, there’s really no way to get around paying less than you need to. Contact Baxton online for information on properties and property management.
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