The Australian Taxation Office (ATO) has flagged its concerns about self-managed superannuation fund (SMSF) trustees using negatively-geared trust arrangements.
The ATO has issued alerts on its website and also has an information line open for SMSF trustees who want information on the matter.
When a trustee uses a negatively-geared trust arrangement, they borrow funds to buy into a trust which then purchases property.
The arrangements are supposed to give the trustee a tax break for their interest payments and borrowing costs.
However, SMSF trustees are finding the strategy backfiring on them as the money they put in is far less than the gains they thought they would make, the ATO said.
Instead, trustees find other beneficiaries of the SMSF end up with the income and capital gains from the investment.
"People should be cautious before claiming negative gearing deductions for borrowings used to fund interests in trusts with discretionary features," ATO commissioner of taxation Michael D'Ascenzo said.
"Before claiming such deductions, people should make sure the relevant expense is sufficiently connected to the income and capital gains they could reasonable expect to receive from their investment."
D'Ascenzo said that the ATO was not concerned about people using discretionary or hybrid trust arrangements.
