Tax enforcement is ramping up – here's how brokers can help
The Australian Taxation Office (ATO) has shifted up a few gears since taking a relatively passive approach throughout the COVID era, with property investors moving firmly into the tax authority’s crosshairs.
By all accounts, tax enforcers were willing to take a lighter touch during the testing pandemic times, but the pendulum has well and truly swung in the opposite direction.
They’re armed with an extra $1bn of federal funding from the 2025 Budget, the lion’s share of which has been dedicated to ATO’s Tax Avoidance Taskforce. The government hopes this war chest will convert into $3.2bn of additional revenue over five years.
Property investors, not least those investing through an SMSF, should not be taking these reinvigorated enforcement measures lightly.
Experts, including Bluestone’s head of specialised distribution Richard Chesworth (pictured, right), reckon the ATO has gone from vetting around 25% of new SMSF applications to every single one – made possible partially thanks to our friend artificial intelligence and all the computational efficiencies that come with it.
Issues surrounding the early access of super and past-due returns lodgements have only galvanised ATO’s hawkishness into the SMSF space, meaning the acceptable margin of error in managing your SMSF is getting smaller and smaller.
It all boils down to one thing: SMSF property investors face repercussions if things aren’t done to the letter of the law. Especially since, as Chesworth said, ATO’s data-matching capabilities are “pretty much world class”.
While mortgage brokers typically are not allowed to advise on tax matters, they can play an important role in steering their clients in the right direction.
After all, SMSF investing is complex at the best of times – even brokers often lack really solid knowledge of how they work.
As a prominent non-bank lender, Chesworth said Bluestone’s role “is very much arming the broker with knowledge and providing education on what you can and can’t do in the SMSF lending space (and) then to be able to direct the customer to the right channel.”
He continued: “In the SMSF space, there's minimal education out there, so we heavily work with brokers to assist them in understanding the opportunities, while working within a credit license, and educate them to support the SMSF trustee.”
The importance of collaboration
During COVID, “there was a little bit more flexibility purely just to get us through that terrible period,” said Chris Booth (pictured left), chief executive of mortgage brokerage Lydian Finance Services. “The ATO now is back. It's got some money… the power in its computer systems, from an analytical perspective, is greatly improved these days as well.”
Big Brother policies, like data-matching legislation and access to records from property-management businesses, not to mention access to residential investment property loan data, has only made the ATO beast stronger.
“There’s so much information that the ATO has access to now and with the power of computers, there’s very little wriggle room to start drumming up a dodgy tax return, which there might have been 10 years ago,” Booth said.
Booth emphasised the importance of brokers in mitigating ATO risk.
“Even though the mortgage broker is working on the property lending and certainly not giving tax advice, what we always recommend is that our brokers work with close professionals,” he said.
His advice? “If a client is buying a property, be it on an SMSF or just a normal investment property, align with a good tax accountant to make sure, one, you’re maximising the benefits and two, you're educating the client on the tax process, and having a tax partner to do it.”
Lydian’s brokers are generally aligned with financial planners, said Booth, plus a good lawyer to do wills and estate planning.
Another piece of advice from Booth: Don’t do things on the cheap, including trying to do things yourself through Etax, which is “not acceptable in this day and age.”
“You need a professional in your team to give the advice which is appropriate for your client,” Booth said.
SMSF property investing is undoubtedly an enticing prospect. It allows you to build equity without taking out huge loans, all the while providing genuine tax benefits, provided the genuine pitfalls are avoided.
Taking responsibility
In supporting SMSF trustees, “it's paramount that (brokers) remember they played a key role in providing credit advice,” said Chesworth. And while the brokers do not typically foray into the tax realm, they can certainly direct the trustee to a decent accountant.
Chesworth added that the SMSF trustee is ultimately responsible for their own actions at the end of the day, even if accountants and advisers have been made use of along the way.
The financial repercussions for getting it wrong can stretch into the tens of thousands of dollars. Brokers may not be able to provide tax advice, but they can certainly point trustees in the right direction.
