A technical sector specialist has warned trustees who exit amounts from their SMSF before receiving a release authority from the ATO not only face unwanted compliance issues but also some administrative consequences that may be difficult to manage.
Accurium head of SMSF education Mark Ellem cited some common situations where trustees often decide to withdraw money from their super fund before the ATO has issued a release authority enabling them to do so.
“If the member has received, for example, an excess determination, an excess concessional contribution assessment, an excess non-concessional contribution assessment, a Div 293 assessment, [they might say to themselves:] ‘I’ll just pay the amount out of the fund to the tax office’ or ‘I’ve got excess non-concessional contributions that can get refunded, I’ll just refund that to myself before the release authority comes,’” Ellem told practitioners during a recent technical webinar.
“That causes two issues. One, if you’ve got preserved benefits, you’ve breached the preservation rules. You have made a payment from preserved benefits without meeting a condition of release, [in this case] being a release authority.”
However, he pointed out even if the member is making the payment from unrestricted non-preserved super benefits, without receiving a release authority first, problems will still arise.
“The issue there is while you may not have a breach of the preservation rules and the payment standards, you haven’t complied with the release authority,” he explained.
“[That means] when the release authority then comes, you will still have to comply with it.
“So you may end up [having to pay] the amount twice … and you’re probably not likely to be able to put one of them back [into the fund] anyway.”
Ellem reiterated the golden rule for trustees is to wait until they have received the pertinent release authority before withdrawing any money from their fund.
He also emphasised the need for trustees to take into account the release authority is sent to the SMSF, while a determination for excess contributions is issued to the individual and this may mean each form of communication is sent to two different addresses.
