ATO practice statement lays down law on illegal early release perpetrators
Recent updates in the Practice Statement Law Administration (PS LA) 2021/1 show that the ATO means business when it comes to illegal early release schemes, says an SMSF Association spokesperson.
Mary Simmons, head of technical for the SMSFA, said the Australian Taxation Office (ATO) has been “unequivocal in its stance against IER schemes” and that the recent update to PS LA 2021/1 has made its authority to act against promoters “unmistakably” clear.
“This update lays out the playbook for ATO officers to identify and penalise those promoting IER schemes, emphasising that the ATO will not tolerate any attempts to withdraw superannuation benefits in breach of the superannuation laws,” she said.
She said the update underscores the ATO’s powers under section 68B of the Superannuation Industry (Supervision) Act 1993 (SIS Act), which targets the promotion of schemes that are “likely to result” in the unlawful release of super funds.
“The crux of the matter lies in the term ‘likely to result’, which provides the ATO with the very broad powers to crack down on activities that might lead to the illegal release of superannuation benefits, even if no withdrawal has been made,” she said.
“This means that merely setting the stage for a potential breach is enough to land someone in hot water.”
However, she said that although this is not a new power, it has been expanded in response to the high-profile PwC matter, following which the government introduced the Treasury Laws Amendment (Tax Accountability and Fairness) Act 2024.
She said this resulted in an expansion of the scope of promoter penalties, including a broader definition of what it means to be a “promoter” under Division 290 of the Taxation Administration Act 1953 (TAA 1953).
“Previously, the ATO had to prove that a promoter received some form of ‘consideration’ – basically a quantifiable financial reward – for promoting a tax exploitation scheme,” she said.
“This requirement made it tough for the ATO to nail cases where the financial benefits were indirect or non-monetary. The definition has now been expanded to include any form of ‘benefit’.”
She said that 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.
“This is a big deal because it significantly lowers the bar for what the ATO needs to prove, making it easier for the Commissioner to act against those promoting illegal schemes, including IER schemes,” she said.
“For SMSF professionals, including tax agents, financial planners, accountants, and legal advisers, the legislation makes it clear that providing advice alone doesn’t make you a promoter.
“Section 290-60(2) of the TAA 1953 states that simply giving advice about a scheme doesn’t land you in hot water. But – and this is a big but – the line between giving advice and promoting a scheme appears to be getting thinner.”
Simmons said that IER schemes can be reported and whistleblower protections under the law safeguard anyone who makes disclosures to the ATO. These protections have also been extended to cover disclosures made to the Tax Practitioners Board.
