Financial detriment and the potential for loss will not be considered as reasons for failing to act on a fund contravention rectification order from the ATO, an SMSF legal expert has warned.
DBA Lawyers senior associate Shaun Backhaus said Practice Statement Law Administration (PSLA) 2023/1, released in early April, detailed the reasons why the ATO would issue a rectification order and the steps an SMSF trustee or member could take in response.
Speaking during a recent webinar, Backhaus added the PSLA also listed events that would not be considered by the regulator as preventing rectification, including financial loss.
“These rectification orders talk about preventative measures so it doesn’t happen again, such as what advice have you sought and what will you do next time before making transactions, as well as corrective action which stops the current contravention, such as repaying a loan, or disposing of an asset under the in-house asset rules,” he said.
“The ATO may consider the financial detriment that might be suffered, the nature and seriousness of contravention and anything else they think relevant.
“Interestingly, the PSLA document states the costs in restructuring a fund, so disposing of assets, including market fluctuations, would not bear much weight.
“Presumably, it bears some weight, but the argument I have always seen is ‘well, I can’t get rid of that asset now that the market’s dropped, I will lose money’.
“Under the PSLA that will not bear much weight. You have to fix the contravention, so do not expect there to be too much sympathy for that argument.”
In the same presentation, he stated SMSFs with contraventions should consider a proactive enforceable undertaking instead of waiting for an ATO-issued rectification order and advisers who had breached superannuation laws would be treated with a stronger approach by the regulator due to their expert status.
