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Before diving into the details, let me just say up front - I’m not a lawyer. What follows is my take on the recent developments in the ATO’s approach to promoter penalties, particularly as they relate to superannuation illegal early release (IER) schemes.
ATO’s Enhanced Focus on Illegal Early Release Schemes
Scam Awareness Week is the perfect time to discuss the ATO’s intensified efforts against illegal early release (IER) schemes.
The ATO has been unequivocal in its stance against IER schemes, and with the recent update to Practice Statement Law Administration (PS LA) 2021/1, the ATO 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.
The Broader Reach of Promoter Penalties: What’s Changed?
The updated PS LA 2021/1 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.
This means that merely setting the stage for a potential breach is enough to land someone in hot water.
But this is not a new power, so what’s changed recently?
In May 2024, in response to the high profile PWC matter, the government introduced Treasury Laws Amendment (Tax Accountability and Fairness) Act 2024 which expanded the scope of promoter penalties. This included 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. 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.” 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.
Walking the Line Between Advice and Promotion
Now, let’s talk about where this leaves SMSF professionals – 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.
The Bottom Line
So, what’s the takeaway?
The ATO’s recent updates show they mean business when it comes to IER schemes. As an SMSF professional, it’s important that you report promoters of IER schemes you encounter.
The good news is that you can report IER schemes with confidence, as the whistleblower protections under the law, safeguard you for disclosures to the ATO. In fact, the whistleblower protections have been extended to also include disclosures to the Tax Practitioners Board.
Written by Mary Simmons, Head of Technical, SMSF Association