Highlights

  • Because release authorities come with strict rules and due dates, trustees who handle them casually can face penalties.
  • With Division 296 tax now part of the landscape, more SMSF trustees may receive one for the first time.
  • The ATO's guidance on responding to release authorities issued to SMSFs lists several types, including those relating to:
  • Division 296 tax, both where it is due and payable and where it has been deferred.

Most of the time, money leaves an SMSF because the trustees have decided to pay a benefit or roll a member's balance to another fund.

What a release authority is

  • excess concessional contributions, where a member elects to release up to 85% of the excess;
  • excess non-concessional contributions, including associated earnings, and excess non-concessional contributions tax;
  • Division 293 tax, both where it is due and payable and where it has been deferred for a defined benefit interest;
  • the First Home Super Saver scheme; and

For many types, the member first elects to release the amount, and the ATO then issues the release authority to the nominated fund.

The trustees' obligations

When an SMSF receives a release authority, the trustees must respond by the due date that applies to that type.

  • receiving the release authority through the fund's electronic service address, or on paper if the fund has no ESA;
  • preparing and sending a release authority statement, which sets out the amount being released, any remaining balance for partial releases and the reason for any shortfall;
  • confirming that the statement has been successfully received before paying;
  • obtaining or generating a payment reference number that matches exactly between the statement and the payment; and
  • paying the lesser of the amount in the release authority and the total super that could be released at that time, to the account specified, without bundling several authorities into one payment.

Payments are made either to the ATO or to the member, depending on the type of authority.

Penalties and timing traps

The ATO warns that a non-compliance penalty of up to 20 penalty units can apply where a fund does not pay by the due date, does not return the release authority statement on time, or releases an amount other than the correct lower figure.

Tax and accounting treatment

According to the ATO, an amount paid under a release authority is non-assessable, non-exempt income for the member, and the fund does not need to work out tax-free or taxable components.

Hypothetical example: a member receives a Division 293 assessment and elects to release the amount from her SMSF.

Practical considerations for trustees

Trustees can prepare by keeping the fund's ESA active, checking messages regularly and making sure the fund holds enough cash to meet a release promptly.

The takeaway

A release authority is a formal instruction with its own process, due date and penalties.