ATO issues advice on responding to release authorities

Trustees may receive a release authority if a member has requested to have some of their super released early from their SMSF where the member has such things as excess concessional contributions, excess non-concessional contributions, excess non-concessional contributions tax, Division 293 due and payable, Division 293 deferred debt, or has requested release under the first home super saver scheme.

The ATO said when an SMSF receives a valid release authority, it is authorised to release the amount from the member’s super account based on the instructions of the specific release authority.

A contravention will occur if the money is released before the member lodges an election form and the SMSF receives a release authority.

Depending on the type of release authority, this amount is either paid to the ATO who then pays it to the member or to us, directly to the member.

The release authority includes a release authority statement and instructions for completing it. Trustees must provide this information to the ATO to confirm that they have released the member’s money in accordance with the release authority.

Trustees will receive release authorities depending on whether the SMSF has an electronic service address (ESA) or not.

If the SMSF has an ESA, the ATO will send the release authority to that ESA and the fund will receive a notification either from the SMSF messaging provider or the fund administrator.

If the SMSF does not have an ESA, the ATO will send a release authority letter and a release authority statement form, which the trustee needs to complete.

The due date of the release authority will depend on the type of release authority.

Before responding to a release authority, the ATO says trustees must first send it the release authority statement (RAS) and how a trustee responds to a release authority will depend on how it was issued.

If the release authority was issued to an ESA, the trustee must send the ATO the RAS message through nominated software, an SMSF messaging provider or fund administrator

by paper. The trustee you must the release authority and return the paper RAS to the ATO.

The RAS should advise the amount to be released to the ATO, and for partial releases, whether any super benefits remain in the account.

It must also advise, where the amount released is less than the authority, why the full amount could not be released.

After the trustee actions a release authority and sends a RAS using software, they will either be provided with a payment reference number (PRN) by the software, SMSF administrator or messaging provider, or advised to generate their own PRN.

They will need to include this PRN when paying the release amount and make sure it matches the one provided in the data message.

If a trustee received a paper release authority, their PRN will be included on the payment slip of the form.

If they are unable to action the release authority, they are advised to send the ATO either a release authority error message through your ESA, or the completed paper RAS.

The second step in the process is to make a payment and the trustee will need to electronically pay the lesser of either the amount stated in the release authority, or the total amount of the super that could be paid at that time.

The release authority the trustee receives will include the bank account to which they need to make the payment.

The ATO said it is important to include the PRN when making the payment. If the trustee receives multiple release authorities, they are advised not to send one bulk payment. The amount they advise is being paid in the RAS must match the amount paid and the corresponding PRN.

There are several types of release authorities that the ATO might send including excess concessional contributions, excess non-concessional contributions, excess non-concessional, contributions tax, Division 293 due and payable, Division 293 deferred debt, and first home super saver scheme.

In the case of excess concessional contributions release authority the SMSF will receive an excess concessional contributions release authority when a member exceeds their concessional contributions cap in 2013–14 and later financial years and elects to release up to 85 per cent of the excess concessional contributions.

The full amount of excess contributions will be included in the member’s taxable income. It will be assessed at the individual’s marginal rate of tax and a 15 per cent tax offset will be applied.

Amounts of excess concessional contributions that are not released will be treated as non-concessional contributions.

The released amount must be paid directly to the ATO and is to be treated as a non-assessable, non-exempt benefit payment to the member.

When your fund releases an amount to the ATO, it will offset the balance against any outstanding tax or other Australian government debts and pay the remaining amount to your member.

If the amount to be paid is excess non-concessional contributions release authority the SMSF will receive an excess non-concessional contributions release authority when a member exceeds their non-concessional contributions cap and has elected to release the excess non-concessional contributions and 85 per cent of associated earnings from that fund, or not made such an election after 60 days, after which the ATO will initiate the process on their behalf.

The released amount must be paid directly to the ATO and is to be treated as a non-assessable, non-exempt benefit payment to the member.

When the fund releases the amount to the ATO, it will be offset against any outstanding tax or other Australian government debts before any remaining balance is refunded to the member.

Trustees don’t need to amend the contributions report provided for this member in the SMSF annual return for 2017–18 and earlier financial years. Releasing this benefit doesn’t change the contributions that led to the excess.

For excess non-concessional contributions tax release authority the SMSF will receive this release authority if the member elects to have their excess non-concessional contributions assessed as excess non-concessional contributions tax in order to pay their tax liability.

When the fund releases an amount to us, the ATO will offset the balance against any outstanding tax or other Australian government debts and pay the remaining amount to the member.

Division 293 tax – due and payable release authority applies when an individual has a Division 293 tax due and payable debt associated with contributions made to accumulation super accounts. This debt must be paid within 21 days of receiving the notice of assessment.

The individual can elect to release an amount from their fund within 60 days of the issue date to pay the debt. The ATO will issue a release authority to their nominated fund. If the SMSF receives a release authority, it must pay the ATO directly.

When the fund releases an amount to the ATO, it will offset the balance against any outstanding tax or other Australian government debts and pay the remaining amount to the member.

Division 293 tax – deferred debt account release authority applies when an individual has a Division 293 tax debt associated with contributions made to a defined benefit account. The debt is deferred until they take their end benefit from their defined benefit account. It can be pre-paid before that time.

The individual can elect to release an amount from their fund within 60 days of the issue date to pay the debt. The ATO will issue a release authority to their nominated fund. A defined benefit fund may voluntarily comply with this version of the release authority. The super fund must pay the ATO directly.

When the fund releases an amount to the ATO, it will allocate the amount to the member’s deferred debt account held by the ATO.

For the first home super saver (FHSS) scheme release authority the SMSF will receive an FHSS release authority when one of the members successfully requests the ATO to issue one under the scheme. The amount released by the fund must be paid directly to the ATO.

When the fund releases an amount to the ATO it will withhold the appropriate amount of tax and may offset the balance against any outstanding tax or other Commonwealth debts and then pay any remaining amount to the member.

The payment of a release authority is a super benefit. The amount paid is to be treated as a non-assessable, non-exempt benefit payment to the member.

The SMSF is not required to work out any tax-free or taxable components when the benefit is paid.

The cashing order for benefits paid to satisfy a release authority is unrestricted non-preserved benefits, restricted non-preserved benefits and preserved benefits.