The government’s proposals to amend the tax promoter penalty laws may create risks for professionals seeking to provide legitimate advice and should not proceed until a broad review of the current laws is undertaken, the SMF Association has cautioned in a recent submission.
Treasury released a consultation paper last month exploring options for improving the operation of the tax promoter penalty laws.
The paper also sought views on penalties for promoting illegal early release schemes under section 68B of the Superannuation Industry (Supervision) Act 1993 (Cth) (SISA).
In a recent submission, the association said the consultation paper did not present a case for change.
“It is unclear, what challenges the Commissioner may be experiencing in practice or whether emerging behaviours or activities are falling outside the scope of the current legislation,” said SMSF Association chief executive Peter Burgess.
“Without these insights, it is difficult to provide any meaningful feedback in response to this consultation paper.”
The association noted that the current drafting of SISA section 68B should be sufficiently broad to capture wide-ranging activities and behaviours and allow for newly emerging or evolving ones.
“The use of the term ‘likely to result’ provides regulators with very broad powers to act in response to activities that might lead to the illegal release of superannuation benefits, even if no withdrawal has been made,” Burgess said.
“This means that merely setting the stage for a potential breach is enough for the Commissioner to act.”
It also noted that the amendments introduced by the Treasury Laws Amendment (Tax Accountants and Fairness) Act 2024 expanded the scope of promoter penalties.
This included a broader definition of the meaning of ‘promoter’ under Division 290 of the Taxation Administration Act 1953 (ITAA 1953).
Previously, the ATO had to prove that a promoter received some form of consideration for promoting a tax exploitation scheme, the submission explained.
“This requirement made it difficult for the ATO to act in cases where the financial benefits were indirect or non-monetary,” it said.
“The definition has now been expanded to include any form of benefit. This change means that whether the reward is direct, indirect, monetary, or in-kind if it encourages the growth or interest in a tax exploitation scheme, the promoter penalty laws can apply.”
The amendments significantly lower the bar for what needs to be proven, making it easier for the Commissioner of Taxation to act against those promoting illegal schemes, including illegal early release schemes targeting superannuation.
Given these provisions only received royal assent on 31 May 2024, Burgess said there was insufficient time to review and assess their efficacy or deficiency.
He also said that any further amendments must be balanced against the provision of legitimate professional advice and the need to protect advisers who do the right thing.
“The existing legislation makes it clear that providing advice alone doesn’t result in a party being classed as a promoter.”
“However, the line between giving advice and promoting a scheme appears to be getting thinner. This in turn is presenting challenges, risks and exposure for professionals who seek to provide legitimate advice to clients, the vast majority of whom seek to do the right thing.”
The SMSF Association has recommended that a broader review is first undertaken before further legislative amendments are considered.
“Only once a case for change can be clearly articulated and evidenced, should further amendments be considered,” it said.
The association said the review should include the current legislative frameworks but also needs to extend beyond the law.
“An examination of the types of activities undertaken by regulators, any resulting actions taken, identify impediments to regulator activities and actions including tools and resourcing, and any emerging issues that risk falling outside the scope of current legislation and powers must be included,” it said.
“We would encourage the proper funding and resourcing of regulators to enable a more proactive approach to be taken to survey, track and monitor a range of platforms and activities. In doing so, this presents real-time opportunities to address illegal activities, such as those emerging through social media to minimise the risks to the community.”
