Superannuation, Tax

Div 293 tax is a personal liability

Division 293 tax

If an individual chooses to have their SMSF make the payment for a Division 293 tax assessment, proper procedures must be followed to avoid penalty.

A technical specialist has warned practitioners the payment of additional superannuation tax levied under Division 293 from the bank account of an SMSF without following the proper legal procedure to do so will result in two adverse outcomes for the fund’s trustees.

“Effectively [this would be a] breach of the preservation rules because this is a personal tax amount and [we would be] using superannuation monies to make a payment, [one that constitutes] a benefit payment,” Accurium head of education Mark Ellem told attendees of his latest TechHub webinar.

“So we’ve got a breach of the preservation rules, which is an operating standard, and a breach of the operating standards can result in an admin penalty of 20 penalty points per trustee. Using the current [penalty point] value of $220 … [that makes] a total penalty per trustee of $4440.

“Further, as a breach of the preservation rules, [it] would mean that the amount withdrawn would be fully assessable to the individual.

“So the individual would have to include the amount in their personal [income tax] return as an assessable income.”

Ellem pointed out for a tax liability incurred under Division 293 to be paid by the SMSF rather than the individual taxpayer, the member in question would have to make an election to the ATO to pursue this course of action within a period of 60 days from the date of the assessment via the myGov portal.

The regulator will then send a release authority to the nominated super fund using the SuperStream system if possible. This release authority will allow the fund to pay the tax liability without penalty.

However, should a trustee make this type of error, Ellem suggested there is an option available that may allow them to avoid incurring an administration penalty.

“An option would be for the [erroneous payment] to be recorded as an amount owing by the member to the fund and for the member to immediately repay it,” he said.

“The fund could then contact the ATO’s SMSF early engagement and voluntary disclosure service [if the breach has not yet been reported].”

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