Administration, ATO, Compliance, Regulation

Clarity needed on illegal access discretion

Illegal early access superannuation ATO discretion tax ruling

Uncertainty over a key tax ruling has raised concerns regarding how the ATO and the tax commissioner might handle cases of illegal fund access by an SMSF.

SMSF trustees remain uncertain about the level of discretion the tax commissioner will apply in cases where they may have accessed funds from their superannuation accounts early due to the lack of clarification on a key tax ruling, a technical specialist has noted.

Smarter SMSF technical and education manager Tim Miller brought attention to two recent regulatory actions taken by the ATO concerning the receipt of superannuation benefits and mentioned being approached about the regulator’s intentions regarding the rulings.

“From the ATO we have had two fairly significant documents over the last couple of years. The first one is Tax Ruling 2013/5. From a legacy point of view, this is ultimately a ruling change that doesn’t really change the way we look at things and it’s been made from a clarity perspective,” Miller said during a recent webinar.

“The other one, and we are still waiting on the ATO for this, is Tax Determination 2021/D6. What these documents [consider] is if you illegally or incorrectly access your superannuation, whether it’s reasonable or unreasonable for you to pay tax at a marginal tax rate and what discretion the commissioner has in this regard.”

He offered trustees some insights on how the ATO and tax commissioner may handle unauthorised early access to superannuation funds, emphasising the greater challenge for SMSFs compared to Australian Prudential Regulation Authority (APRA)-regulated funds in presenting evidence.

“They are going to look at the nature of the fund and what led to the circumstances of the payment coming out, how much control did you have as a trustee for those circumstances and what steps were taken to make good on that final outcome,” he said.

“If there’s been illegal access of super and it comes from an APRA-regulated fund or comes through in error, there’s probably a greater chance that the ATO are going to be a little bit more lenient on that.

“But as with a lot of these issues, if [illegal early access] occurred within an SMSF where the trustees have ultimate control over the payment of the benefits, then the circumstances are going to have to be pretty significant to convince the commissioner that early release wasn’t involved.

“As recently as the last couple of months, the ATO have given more warnings about the early release of super and schemes to enable that, and over 700 trustees were disqualified in the 2023 financial year and the majority of those were for early release.

“So I really hope we see some answers with regards to that tax determination.”

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