Industry has to educate trustees to avoid early access penalties: SMSFA
The SMSF industry has a role to play in ensuring trustees are aware of their goals and understand the preservation rules and consequences of taking money out of their funds too early, says the head of the SMSFA.
In the latest ASF Audits podcast, Peter Burgess, CEO of the SMSFA, said the most common reason the ATO is disqualifying trustees is due to illegal early access from their super fund, adding that a majority of the time these have been accidental or inadvertent due to a lack of education.
Mr Burgess said there does not seem to be much relief for these in the guidance around the regulation PSLA 2021/3 which deals with Commissioner discretion in regard to penalties imposed for compliance issues around early illegal access to super.
“Whether the Commissioner decides not to treat or impose penalties for exposure seems to depend on how much control the trustees had over the situation,” Mr Burgess said.
“In an SMSF type scenario, it could be difficult to put the case forward that they weren’t in control of their transactions.
“And I think it would be an unusual set of factors that would suggest that the Commissioner would exercise discretion, and not to take action or not to treat a benefit as being paid out legally as taxed as income.”
He said incidents often arise in which the access is an innocent mistake due to lack of education or understanding of the rules.
For example, he said, there could be a situation where, in a two-member fund in which one member takes out excess of their member benefits, they haven’t met a condition of release and the other member may not understand what’s happening or even know about the transaction.
There is also the issue of “honest mistakes” where trustees have realised their error and the money has been put back into the account in a very short space of time.
Mr Burgess said there has been little correspondence from the ATO around this issue despite advocacy from the SMSFA.
“There doesn’t appear to be a lot of wiggle room to be able to get those amounts back into the fund and not be treated as a contribution,” he said.
“I think there’s potentially a bit to play up with this consultation.”
However, he said the ATO does have some good information on its website about these issues and produced a number of fact sheets available in a number of different languages which advisers and trustees should use to avoid any common mistakes.
“There’s some good information there that can be used to send out to clients to make sure that they understand the rules,” he said.
“It just seems like there’s a big net that SMSFs can caught up in this particular ruling if in fact it goes through.
“It’s going to be one that we have to keep an eye on and we’re very keen to ensure that fairness applies and there is an appropriate amount of wiggle room provided to trustees who do find themselves caught up with these types of arrangements.”
