The ATO has revealed it is still seeing issues regarding compliance with release authorities and confirmed ignoring this part of an SMSF withdrawal procedure can lead to drawdowns being categorised as illegal early access of benefits.
“Release authorities are a big issue for us. Unfortunately, a lot of trustees will get their Div 293 tax assessment or their excess concessional contribution tax assessment [and] they’ll immediately pay it from the SMSF before they have received a release authority from us. This is a breach of the rules and can result in them being subject to administrative penalties,” ATO director Kellie Grant told practitioners at The Tax Institute National Superannuation Conference held in Sydney recently.
“That can actually be an issue as well with illegal early release in those sort of situations as well.”
To this end, Grant pointed out advisers should communicate firmly with their clients when they know these circumstances are likely to arise to ensure those trustees comply with ATO release authorities.
“I think the message there would be as soon as you’ve got a client you know is going to have Div 293 tax, or excess contributions tax, put them on notice [and tell them] do not release any money from your fund to pay a debt until such time as the ATO sends you that release authority,” she suggested.
She also took the opportunity to stress another aspect of the release authority to which SMSF trustees need to pay particular attention.
“If we send you a release authority via SuperStream, you need to pay that release authority via SuperStream and notify the commissioner that it has also been paid for via SuperStream,” she indicated.
“That is definitely something that is compulsory right now and most funds are set up with electronic service addresses these days so should be able to meet those standards.”
However, she recognised some release authorities are delivered outside of the SuperStream system.
“Sometimes we do send releases via paper and if that’s the case, you can comply with that release authority by paper,” she said.