Shelley Banton, head of education for ASF Audits, said practice law statements set the guidelines for ATO staff to determine how penalties apply.
“They allow the sector to understand the parameters for how the ATO will apply a penalty and provide the SMSF industry with a blueprint of what to expect and how to frame a response to a breach.”
One of the practice statements that has been put on hold is education directions.
Ms Banton said the ATO was developing a practice statement on education directions to guide ATO staff on the relevant matters to consider when deciding to give an education direction to SMSF trustees under s160 SIS. It was due out in early 2024.
“Under an education direction, trustees must take a free, approved education course within six months to comply. These were previously provided by external stakeholders,” she said.
“The ATO has since withdrawn approval for these education courses and was supposed to develop an online course based on its SMSF lifecycle publication.
“At the same time, it ceased issuing education directions to SMSF trustees, as the ATO was waiting until the course was completed by the end of this year.”
Ms Banton further explained that other priorities appear to have replaced the development of an ATO online education course.
“As such, they are not proceeding with the practice statement but will recommence once an approved education course is available.
“In the meantime, the ATO will continue to issue rectification directions in line with PSA 2023/1.”
The second PSLA that has been affected is the super benefits in breach of rules.
Ms Banton said the ATO previously issued TD 2021/D6 and PSLA 2021/D3, which was a draft tax determination and practice statement about the tax treatment and the Commissioner’s discretion regarding a member receiving benefits in breach of legislative requirements.
“The importance of the draft PSLA is that where the Commissioner applied discretion to illegal early release, the benefit won’t form part of the person’s assessable income but will be taxed as a super benefit and have a better tax outcome,” she said.
“In the draft PSLA, the ATO identified factors that have little or no weight in deciding whether or not the Commissioner exercises the discretion.
“These included if the person was suffering from financial hardship or distress, if the person was attempting to rectify it by paying the amount back shortly after receiving it, whether or not the ATO is going to disqualify a person from being a trustee, or the fact that the tax consequences are difficult for the person to meet,” she said.
“It is the second factor that has implications for SMSFs, where members attempt to rectify illegal early access by paying the amount back shortly after receiving it. The reason is that a member withdrawing monies on purpose or accidentally can pay it back quickly”.
What the draft PSLA currently says is that any amounts paid back will be considered either concessional or non-concessional contributions.
“There are two issues here,” said Ms Banton.
“The first is whether a member exceeding their contribution caps as a result of the repayment could receive an excess determination depending on the member’s circumstances, and secondly in regard to any monies taken where the member has not met a condition of release that results in an SIS breach can never be rectified.
“It means that all withdrawals made in error and repaid within days or weeks is a contribution under this draft PSLA and not a rectification.”
Ms Banton said the ATO also said in the PSLA that if a member accesses a benefit under an illegal early release scheme, it generally will not exercise the discretion.
“That also applies to where the person has lost the money after it’s been illegally given to a promoter of a scheme or through fraudulent activity and will be included in the member’s personal assessable income,” she said.
“Consultation on the draft practice statement closed with many other comments and technical issues identified.
“As a result, the ATO removed this from the program in May 2023 and is now on hold indefinitely due to other higher-priority work.”
