In December last year, the ATO published a draft Law Administration Practice Statement, PS LA 2021/D3, which explained when and how the ATO would apply discretion in section 304-10(4) of the Income Tax Assessment Act 1997 where a taxpayer receives a superannuation benefit in breach of the legislative requirements.
It has also published a draft tax determination, TD 2021/D6, which clarified the tax treatment of a superannuation benefit where a commissioner exercises the discretion in subsection 304-10(4).
In a submission to the ATO’s consultation on the draft guidance, Chartered Accountants Australia and New Zealand (CA ANZ) and CPA Australia stated that on the whole, they agree with the administrative approach the Commissioner intends to implement in relation to illegal early release of super.
However, the accounting bodies expressed concern about the proposed treatment of rectified transactions.
Paragraph six of the PS LA 2021/D3 states that an attempt to rectify a transaction by paying an amount equal to the superannuation benefit to the superannuation fund, immediately or shortly after receiving the benefit, is “generally a factor that would be given little or no weight when considering to exercise the discretion” found in sub-section 304-10(4) of the Income Tax Assessment Act 1997.
CPA Australia and CA ANZ stated this approach “appears unnecessarily harsh in some circumstances”.
“It suggests that inadvertent errors that are promptly fixed are likely to not be considered for any discretion by the Commissioner. Our view is that an attempt to immediately rectify an inadvertent error is valuable evidence that discretion may be deserved,” the submission stated.
The joint bodies stated that genuine misunderstandings about the complex superannuation laws and related administrative guidance might see a benefit paid out before a relevant condition of release specified in the Superannuation Industry (Supervision) Regulations 1993 has been satisfied.
“In an SMSF context for example, such mistakes may arise because the SMSF trustees have misunderstood information published on the ATO website, and the error is uncovered by a professional adviser only during the preparation of the annual accounts, when the audit is conducted or during the tax return preparation process,” the submission said.
“If such errors are then promptly corrected, again, we believe that there exists valuable evidence that discretion may be deserved.”
The joint accounting bodies said they encourage the ATO to offer reasonable concessions in these and other similar situations.
PS LA 2021/D3 should also highlight the practical importance of SMSF trustees obtaining ATO or professional advice.
The SMSF Association, in its submission, also previously called for the Commissioner to reconsider his view in relation to attempted rectification.
The submission stated that “trustee behaviour which demonstrates a willingness to rectify, should be considered a relevant factor, otherwise the consequences can be unintended or unjust”.
“For example, treating a rectification as a contribution has the potential to apply multiple layers of tax and penalties,” the submission noted.
