ATO, Compliance

Control levels impact early access discretion

SMSF early access control

SMSF effective control compliance from the ATO regarding early access of superannuation or other payment breaches will differ to APRA funds, an expert has warned.

SMSF trustees have been warned a breach of superannuation payments standards, even under accidental circumstances, may not receive discretion by the ATO due to differing SMSF effective control obligations.

Smarter SMSF chief executive Aaron Dunn said the ATO’s draft guidance regarding breach of payments, such as the early release of superannuation, and how the regulator plans to approach those scenarios has very limited flexibility and scope for discretion.

“When we have a breach of the payment standards there has been a withdrawal or payment that has not complied with the cashing restrictions. This goes from illegal early access of benefits all the way through to things like a breach of the 10 per cent of transition-to-retirement pension,” Dunn said.

“It all comes back to effective control on the decision-making as to whether the access to that money was outside of the trustee’s effective control.”

He warned effective control may apply differently to an SMSF than an Australian Prudential Regulation Authority (APRA)-regulated fund due to the trustee rules that apply.

“The commissioner has stated ‘the only factors that may support exercising the spirit of discretion is around the effective control that the recipient of the benefit has’,” he said.

“If we had SMSFs that had been dipped into for the benefit of the member because they were suffering some sort of hardship and distress, and they did not go through the appropriate mechanisms to obtain that money, then it would be highly unlikely that the commissioner would look to exercise discretion.

“There may be limited circumstances for SMSFs where the member does not have effective control and there does not appear to be much scope for an SMSF where that effective control would be outside of the hands of the trustees or members.”

In contrast, he provided an example where a member had received significantly more than allowed during their transition to a retirement pension from an APRA fund.

“[The trustee] requests, each year, to draw a transition-to-retirement maximum amount to be paid to him annually. It’s acknowledged and then when the payment occurs, [the trustee] receives $85,000 instead of $75,000,” he said.

“Technically he has now breached the payment standards because he has taken more than what the law allows for him to do, but it is outside of his effective control … it is controlled by the trustees of the APRA-regulated fund.”

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