The billions of dollars pouring into superannuation savings are irresistible to investment scammers, but accountants are putting a stop to their dubious schemes.
When it comes to superannuation scams, Dennis Eagles has seen them all.
In recent years he has been left shaking his head in disbelief as Gold Coast property-spruiking opportunists have urged investors to set up a self-managed superannuation fund (SMSF) to buy property with as little as A$30,000 in the fund.
“That was the lowest I ever saw in an ad,” says Eagles, head of self-managed superannuation at Grant Thornton. “It was just crazy.”
With an estimated superannuation pool of more than A$2 trillion in Australia, it is inevitable that some con merchants will pursue unsuspecting investors. Their typical target? Small business owners, self-funded retirees, or property investors aged more than 50 who are looking to put significant amounts of money into super, usually through a SMSF.
In such an environment, accountants are increasingly being seen as the trusted adviser who can warn clients about scams or questionable investment advice.
Says Eagles of his firm’s interaction with clients: “We spend a lot of time dealing one-on-one with clients and explaining the scenarios. The key to avoiding any scam is talking to your adviser first.”
Common superannuation cons
A range of illegal actions is on the Australian Taxation Office’s (ATO) radar, including:
- Dividend stripping: taking tax-free profits, with shareholders in a private company transferring ownership of their shares to a related SMSF so the company can pay franked dividends to the SMSF.
- Early release: fraudsters offering consumers access to super funds through a SMSF before the legal release age, and taking a substantial fee for themselves.
- A non arm’s-length limited recourse borrowing arrangement (LRBA): a SMSF trustee undertakes an LRBA where the lender may be a related party and the loan is not consistent with arm’s length dealing.
- Personal services income: individuals divert income earned from their personal skills to the SMSF in a bid to have the money concessionally taxed or treated as exempt from tax.
ATO assistant commissioner Kasey Macfarlane acknowledges the importance of accountants in foiling such schemes.
She asks them to stay vigilant and blow the whistle on any arrangements that are artificially contrived and complex, involve a lot of paper shuffling, seek to leave the taxpayer with minimal or zero tax, or aim to give a present-day benefit.
“To be more effective, we need the help of accountants and advisers,” she says.
“We recognise their value in community networks, whether they’ve been directly approached by scheme promoters, have listened to their pitches at seminars, or encounter tax-avoidance risks through contact with their clients.”
Macfarlane says the aim at all times must be to ensure that investors “don’t inadvertently fall prey to a risky scheme that could see their retirement nest egg jeopardised”.
The ATO has also launched a program called Project Super Scheme Smart to educate the public on tax avoidance schemes and potential scams.
Accountants’ role in preventing super scams
Accountants justifiably pride themselves on their role as protectors of their clients, drawing on their industry expertise and the resources of the ATO to identify and repel scams.
CPA Australia head of policy Paul Drum FCPA says it is clear that “unscrupulous people” have been approaching SMSF trustees with a view to taking a cut from their funds, including through early-release rackets. However, he believes accountants’ broader watchdog role is also crucial to ensure that clients do not set up inappropriate investment vehicles in the first place.
“It’s not just about scams to get hold of the money later by encouraging clients to release their money early. It’s about whether they should have had a SMSF in the first place.”
Drum says accountants authorised to provide licensed financial advice are in the front line of efforts to protect clients.
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“Clients might see ads or be approached or solicited and encouraged with a deal that’s too good to be true, to access their super funds early before they get to retirement. So they need to be circumspect and get advice on those things.”
The Australian Securities and Investments Commission (ASIC) is also taking aim at dodgy practices targeting SMSFs, including unlicensed financial advice that is often delivered in combination with property spruiking, inappropriate investment strategies, aggressive advertising and fraud.
Louise Macaulay, senior executive leader, financial advisers at ASIC, says it is crucial for accountants to be aware of scams and to report them to ASIC, the ATO or the Australian Competition and Consumer Commission.
“Protecting clients from scammers can have a huge impact on the accountant-client relationship in terms of trust and confidence by the client for the accountant,” she says.
Danger period for super before June 30
Some finance industry figures are especially worried about the lead-up to superannuation reforms that apply from 1 July 2017. With the non-concessional contribution cap, for example, being subject to new limits, there is every prospect of billions of dollars being pumped into super before that date.
Eagles says some opportunists are “trying to manipulate the rules and changes”, reminding him of a period a decade ago during a similar time of major reforms when some investment advisers and mortgage brokers convinced people to over-extend themselves financially.
“I can sense that happening again now.”
Eagles says super planning in advance of the July reforms is essential, especially in areas such as estate planning. His tip? “Know the rules, get advice.”
Watch out for …
ASIC wants SMSF advisers, including accountants, to warn clients about the following issues:
- Websites, especially overseas sites, promoting seemingly legitimate investment schemes that operate without an Australian Financial Services Licence (AFSL).
- Misleading claims about the benefits of SMSFs on websites, through social media and in promotional material.
- If a SMSF member loses money due to theft or fraud, they are not entitled to any special compensation schemes and do not have access to the Superannuation Complaints Tribunal to resolve disputes.
How scammers are targeting pre-retirees and their SMSFs.