Mark Ellem, head of education for Accurium, said the ATO is concerned that SMSFs are not complying with release authority requirements, responding within 10 business days or replying to them correctly.
“Remember that the release authority is a condition of release. It does have a cashing restriction which means the amount that can be paid out of preserved benefits is limited to the dollar amount on the release authority,” Ellem said.
“It is in schedule one of the SIS regulations, along with retirement, total, permanent disablement, temporary incapacity, death. Additionally, as it is a condition of release with a cashing restriction it permits benefits to be released for the purpose of paying an amount per release authority.”
Ellem said a release authority arises as a result of an individual receiving a personal tax assessment or notice determination, if they have excess concessional, excess non concessional, Division 293, which is extra additional tax on the assessable contributions because they’re over the $250,000 income threshold.
“It also covers releases under the first home Super Saver scheme. In addition it covers all personal tax or personal issues that the member can then elect for the amount to come out of their superannuation fund,” he said.
“That is a benefit payment and to permit the payment of the benefit, you need a release authority, so the release authority is issued to the fund to authorise it to release the amount, which is paid to the ATO, that pays it to the member after they have deducted any ATO debts.”
He gave an example of a Division 293 notice which the member has elected to be paid out of the fund.
“The ATO would keep that as it would be the amount of the Div 293 tax, and there wouldn’t be anything on-sent to the member, as compared to excess non-concessional, where the amount of the excess non-concessional plus 85 per cent of the associated earnings is released to the ATO,” he said.
“[In this case] the ATO will keep the additional tax on 100 per cent of the associated earnings tax at the individual’s marginal rate, and then release the balance to the member.”
He continued that the SMSF is required to respond to the release authority within 10 business days by making the relevant payment to the ATO and also completing the release authority statement and sending it back to the ATO within those 10 business days.
“There are a number of mistakes that can be made in this process. The overall theme of the mistakes is making payment out of the superannuation fund prior to the fund receiving the release authority,” he said.
“For example, if the member has received an excess determination and elects not to pay it themselves, but before the release authority is issued to the fund they decide to just pay it out of the fund believing they can get refunded, there are two issues that can occur.”
The first, Ellem said, is that if the member has preserved benefits, they will breach the preservation rules as they have made a payment from preserved benefits without meeting a condition of release.
“That condition of release is the release authority. Even if the member has unrestricted non-preserved benefits, the issue is, whilst they may not have a breach of the preservation rules benefit payment standards, they haven’t complied with the release authority,” he said.
“When the release authority then comes, they still have to comply with it and may end up with paying the amount twice. The golden rule is wait for the release authority. It’s issued to the SMSF. The determination, the assessment, is issued to the individual and that may be a different postal address from where the release authority is sent.”
