Too-good-to-be-true schemes target superannuation

Last year, the Australian Taxation Office (ATO) launched a program called Project Super Scheme Smart to educate the public on tax avoidance schemes and potential scams. It was a response to an increase in the number of dubious schemes aimed at people approaching retirement, especially targetting superannuation money.

This is not because older Australians are more gullible, but because they are likely to have larger nest eggs than younger people and are therefore more lucrative targets.

Here are some of the traps:

Cold-calling scams
Even savvy investors have been caught out by dodgy investment schemes and marketing. Cold-calling is common and the scams often involve share, mortgage, or real estate high-return schemes, options trading or foreign currency trading. The scammer is often operating from overseas, and will not have an Australian Financial Services Licence.

Scammers might encourage the purchase of shares in a company they forecast will soon increase in value. The contact might be by personal email and might seem like an insider tip. Often, there is some urgency mentioned, when all the scammer may be doing is generating demand for a stock they want to sell at an inflated price. The recipients often have little ability to value the shares, which may be virtually worthless.

Pre-retirement schemes and SMSFs
Slickly run presentations or schemes are designed to swindle investors and superannuants out of as much money as possible, including hard sales pitches that are tempting but misleading. The Australian Competition and Consumer Commission’s Scamwatch service reported $85 million was lost in 2015, with 105,200 scam complaints. 

There is a particular issue in the six months to 30 June 2017 because changing superannuation rules give a final ‘use it or lose it’ opportunity to place a large amount into this tax-advantaged vehicle. For example, the annual $180,000 non-concessional contribution cap (or using the three-year ‘bring forward’ rule, perhaps $540,000 per person) will be replaced by an annual $100,000 limit. Billions of dollars will be pumped into superannuation in coming months, and with deposit rates less than 3 per cent, savers are looking for better rates and are especially vulnerable.

The ATO warns people aged 50 or over to beware of schemes that “are artificially contrived and complex, usually connected with a SMSF; involve a lot of paper shuffling; are designed to leave the taxpayer with minimal or zero tax, or even a tax refund; aim to give a present-day tax benefit by adopting the arrangement”.

“Individuals caught using an illegal scheme identified by the ATO may incur severe penalties under tax laws. This includes risking loss of their retirement nest egg and also their rights as a trustee to manage and operate a SMSF,” says the ATO.

Investment seminars
Wealth-creation and investment seminars are now among the leading scams in Australia. Complaints include that seminars pressure attendees to purchase expensive reports, books and courses and many present ‘glamorous’ motivational speakers who use high-pressure sales tactics and unproven statistics to convince customers to sign up to their deals.

In some cases, attendees at property investment seminars are offered free flights to interstate properties, where they are chauffeured from the airport, accompanied to inspections and taken back to an office, where they were pressured to sign legal documents without recourse to independent advice. Finance and insurance is arranged on the spot, and it can be difficult to resist the shiny new apartment when all the largesse has been lined up. There is little or no ability to check prices. Step back and seek independent advice.

Accessing superannuation early
A common thread in financial scams is that someone claims to know techniques to access superannuation early, often tied to an investment in property. This may be done by transferring superannuation money to another fund for a fee.

Many people have not only been fleeced of their entire retirement funds, but such schemes can be subject to significant ATO penalties. Accessing the preserved part of super is illegal until at least 55 years of age (and the minimum age is increasing), unless certain hardship or compassionate conditions are met.

Superannuation also has a ‘sole purpose test’ rule, which means the money can only be used to provide retirement benefits for members, or to their dependants if the member dies. Contravening the sole purpose test may cause loss of the concessional tax treatments of super, or civil or criminal penalties. This is the main reason, for example, why superannuation cannot be used to buy art for personal and immediate enjoyment, as that is another purpose.

Self-managed super is a valid retirement savings vehicle, but it comes with strict legal obligations on the trustees, who must sign a trust deed with detailed legal requirements. These include outlining an investment strategy which may not include the assets in the scheme. 

How to avoid the rip-offs

• Don’t give your details to an unsolicited caller or reply to emails offering financial advice or investment opportunities.

• Be suspicious of investment opportunities that promise a high return with little or no risk.

• Check if a financial advisor is registered via the ASIC website.

• Don’t let anyone pressure you into making decisions about money or investments and never commit to any investment at a seminar before obtaining trusted, independent advice.

• Watch for offers promoting easy access to superannuation.

If you have been targetted or victimised by a scammer, tell the relevant authorities immediately. Your bank might be able to reverse a transaction. In addition, if you have been tricked into signing dodgy financial documents, seek legal counsel and talk to the ATO as soon as possible to minimise further penalties. The website, scamwatch.gov.au, is also regularly updated with warnings and advice.

Have you been targeted by scammers? 

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