The ATO has observed a sizeable number of SMSFs are failing to respond to release and commutation authorities and has confirmed this inaction can attract unwanted penalties.
ATO SMSF risk and intelligence director Paul Delahunty indicated non-compliance in this area was an emerging issue for the regulator ahead of the introduction of the Division 296 tax on superannuation earnings.
“We have seen a growth in SMSF non-compliance with release authorities which are the documents we send to super funds to authorise the release of money from a member’s super account to pay for specific liabilities,” Delahunty told attendees of an recent online update.
“Release authorities we are concerned about relate to excess concessional and non-concessional contributions as well as Division 293 tax assessments.
“We are observing about a quarter of SMSFs who receive a release authority are not responding to it.
He took the opportunity to remind practitioners an SMSF is obligated to respond to the release authority within 10 business days by releasing the funds and returning the release authority statement to the ATO.
“Super funds that do not meet their release authority obligations can incur significant penalties and the new Division 296 legislation will create further engagement between the Commissioner and SMSF trustees on release authorities.”
Delahunty added non-compliance with commutation authorities had also increased and about a third of SMSFs receiving one of these notices were not acting accordingly.
“Commutation authorities relate to the limit on the amount of capital individuals can transfer into their tax-free retirement [phase],” he said.
“If an individual exceeds their personal cap, which will be somewhere between $1.6 million and $2 million depending on their circumstances, and they don’t act on the determination, then we will issue a commutation authority to the SMSF to remove the excess amount.”
Earlier this year the ATO recognised while some SMSFs were meeting their obligations under a release authority they were making mistakes in the payment process and acting before the authority had been issued.