The three property tax traps the ATO is now cracking down on

Property investments are at the heart of a crackdown by the Australian Tax Office, which could see duped retirees risk half of their savings or pay hefty unpaid tax bills.

The ATO's new Super Smart Scheme program, which zeroes in on tax-dodging self-managed super funds (SMSFs), is yet to penalise trustees but warns of illegal scheme spruikers that target people on the verge of retirement hoping to boost their savings.

"If a taxpayer becomes involved in any illegal arrangement, even by accident, they may incur severe penalties, jeopardise their retirement savings and risk losing their rights as a trustee to manage their own fund," deputy commissioner James O'Halloran said.

The ATO has identified three types of dodgy scheme, two involving property investment, which are being promoted via wealth seminars and other means to self-funded retirees, including small business owners, and those involved in property development with significant assets.

"The arrangements may be cleverly disguised to look legitimate, involve a lot of paper shuffling and framed as being designed to give a taxpayer a minimal or zero amount of tax or even a tax refund or concession," Mr O'Halloran said.

Three illegal schemes catching SMSF trustees

First, Mr O'Halloran warns any scheme where an SMSF is granted "legal life interest" over a commercial property so that rent is diverted to the SMSF and taxed at lower rates while an individual or related entity, which granted the interest, retains ownership of the property is illegal.

A second set of schemes include artificial arrangements involving SMSFs and related-party property development ventures where the scheme spruiker charges a commission.

And a third type is where individuals, including SMSF members deliberately exceed their non-concessional contributions cap to manipulate the taxable component and non-taxable component of their fund balance upon refund of the excess.

How to steer clear

Self Managed Super Fund Association policy head Jordan George hoped any SMSF member in the cross hairs of these schemes should give it "the sniff test" or seek the opinion of a trusted financial adviser.

"If it sounds too good to be true it probably is for schemes targeting super or your finances. Don't rush into making a decision," he said.

"The (legal) threshold is breached if you're only doing this to minimise tax and it is not helping you build retirement savings."

He said residential investment properties and commercial properties were popular with SMSFs and a legitimate way to minimise tax on rental income to 15 per cent in accumulation phase and tax-free in the pension phase.

Capital gains tax is just 10 per cent if the property is held for more than a year.

Mr George said the $700 billion SMSF sector was a lucrative pool for people looking to exploit and almost half of SMSF members are aged over 50, in the sweet spot for dodgy wealth promoters.

He hoped the ATO program would encourage do-it-yourself super funds to engage more with superannuation specialists for financial advice and to ensure their fund is compliant.

This story The three property tax traps the ATO is now cracking down on first appeared on The Sydney Morning Herald.