ATO sounds warning on SMSF / Vestey Trust Transactions

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Just before the turn of the year, the ATO highlighted its concern with SMSFs entering into unusual asset protection arrangements. In particular, the ATO noted its concern with the use of ‘Vestey Trusts’ (see ATO release QC 71175, 22 December 2022).

What is a Vestey Trust?

Vestey Trusts are named after an old baronial English family that pioneered the strategy. The exact technicalities of these structures can vary, but often operate around gifting all of a person’s assets into a related trust, and then borrowing those assets back. The Vestey Trust then takes an equitable mortgage as part of that borrowing arrangement. The intended purpose is to make that related trust a secured creditor that ranks ahead of and defeats any other creditors.

ATO’s warning

The ATO’s warning is interesting for a variety of reasons, at least within a superannuation context.

Firstly, as the ATO points out, these types of arrangements are likely to breach a host of superannuation provisions. It’s never a good sign when a super strategy actually breaches legislation.

Secondly, as the ATO also points out, use of a Vestey Trust in a superannuation context is unnecessary. This is because a person’s superannuation is not part of their ‘divisible property’ for the purposes of the Bankruptcy Act, meaning generally superannuation cannot be attacked during a personal bankruptcy.

One of the unfortunate features of the self-managed superannuation environment in Australia is that it sometimes attracts service-providers making outlandish claims or spruiking strategies that are non-compliant or ill-suited to most people. In this case, the ATO has voiced a concern that a service may cause a breach of regulations AND is unnecessary anyway.

We should take this as a timely reminder that when it comes to superannuation, it’s always best to use caution when someone makes a claim that’s too good to be true.

By the way, for fans of Paul Kelly, the Vestey family were the villains in his iconic song, ‘From Little Things Big Things Grow’.

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