A senior SMSF executive has reminded practitioners of the ATO’s current stance on illegal early access of superannuation benefits as to the discretionary powers it may apply to lessen consequences for trustees who have committed this type of compliance breach and tried to incorrectly rectify it.
ASF Audits head of technical Shelley Banton noted the regulator’s position was communicated via Practice Statement Law Administration (PSLA) 2021/D3 and has not changed despite the history of this directive.
“PSLA 2021/D3 is an ATO draft law administration practice statement which was actually removed from the ATO’s Advice Under Development program back in 2023 and that’s because the industry had a meltdown when it was first published,” Banton told attendees of a technical webinar she recently hosted.
“The PSLA was all about what discretion could the ATO apply when considering fines and penalties because of illegal early access [to benefits] in an SMSF.
“What the practice statement said is that the ATO will not exercise discretion where there is an attempted rectification of a transaction by paying an amount equivalent to the benefit immediately or shortly after receiving it.
“What it further said was any amounts paid back would be considered either concessional or non-concessional contributions.”
She pointed out the significant implications the regulator’s attitude will have for SMSF trustees.
“The big aha moment for us all is that any monies taken out of the fund that results in a breach of SIS (Superannuation Industry (Supervision)) [provisions] can never be rectified … so let’s think about all of those withdrawals that of course are made in error that are paid [back] within a few days, weeks or months.
“That money coming back into the fund is technically a contribution under this draft PSLA and not a rectification.”
According to Banton, the ATO’s interpretation under PSLA 2021/D3 is correct and acknowledged the statement could be formalised in the future.
She confirmed the monies withdrawn illegally from an SMSF will be taxed at the member’s marginal tax rate and individuals in this situation could face sanctions if they submit fraudulent documents to the ATO. Further, the superannuant could have additional administrative penalties imposed on them and could be disqualified from being an SMSF trustee..
