How does the superannuation system treat the released payments? Is the trustee authorised to make the payment to the ATO?

The amount paid to the ATO in accordance with the release authority is, in fact, treated as a benefit payment to the relevant member.  The SIS Regulations have been recently amended to specify a payment under a release authority for a Division 293 assessment as a permitted condition of release.   The release condition is item 111B of Table 1 in Schedule 1 of the SIS Regulations.  Consequently there is no SIS impediment to the trustee in acting upon a release authority.

The payment to the ATO under the release authority is a benefit payment in respect of the relevant member.  However, as this payment is treated as “non-assessable non-exempt” income of the member (by reason of s303-20 of the Income Tax Assessment Act 1997) – there is no tax consequence to the member and the member is not required to include the payment in their income tax return.

The SUPERCentral Governing Rules have been previously updated in consequence of the introduction of Division 293 and the payment of Division 293 tax by a superannuation fund.

Rule 16.6 permits the trustee of the superannuation fund to pay to the ATO the amount permitted to be paid under the release authority.  Rule 12.17(k) permits the trustee to adjust the member’s account to reflect the payment under the release authority.  

In short, the trustee of any SMSF which is now on the SUPERCentral system, can safely process release authorities issued in relation to Division 293 tax assessments.