Here’s a motto for SMSF trustees – before doing anything, if you’re unsure – check.

The obvious question, however, is who do you get information from and can they be relied upon?  What happens if you later find out they were wrong?

Great questions which we will seek to answer here.

First, let’s look at the two most common sources of information for SMSF trustees.

1. Media – research has constantly shown that SMSF trustees rely on various media for information, knowledge and ideas.  On the whole journalists are skilled at communicating but aren’t superannuation subject matter experts.  They often turn expert information into something more digestible.  But there are no guarantees the information is accurate or encompasses all relevant information.  Super and tax laws aren’t without their twists and turns and I have seen some journalists ignore important caveats on the basis that the material would be too boring or complex.

The Courts and the ATO are mostly reluctant to let you off the hook if you’ve done something wrong because of a newspaper or journal article or what you heard on the radio.  In some rare cases, superannuation investors have successfully pleaded for leniency from the Courts because their primary information had come from newspapers.

1. Professionals i.e. financial advisers, SMSF administrators, lawyers and accountants – when given the wrong information you can always sue for negligence but you need deep pockets and oodles of patience.  In many cases, your ability to get compensation will depend on the nature of a mistake and whether or not it’s covered by an organisation’s Professional Indemnity insurance policy.  Sometimes you can complain to professional bodies (for free) and seek redress.

 The ATO

So what’s another strategy you can employ? The ATO offers you an avenue to get its views about your super fund or a proposed transaction. It allows you to apply for a Private Binding Ruling (PBR) for tax matters and for SMSF Specific Advice in relation to your SMSF.

These two documents serve similar purposes but deliver very different results.

1) Private Binding Rulings

These can only involve taxation matters – for example, taxation of super contributions, Capital Gains Tax, GST, super fund income tax issues, tax on super payouts and pensions.

You, or your advisers, apply for a ruling about anything in the tax laws.  For example, you might want to know if you can claim your personal super contributions as a tax deduction.  So, you apply for a PBR and provide details of your age, income etc.

Your question can be about something you have done or something you are thinking of doing.

The ATO has to respond within 60 days. If you don’t get a response, then they’re deemed to have answered your question in the negative.

The best thing about any ATO response you receive is that it legally binds the ATO.  This means that they must abide by the document they sent you even if they later change their mind on how the tax laws operate.  For example, suppose the ATO initially told you that you can claim your super contributions as a tax deduction but it later decides that people in your circumstances can’t claim this deduction. Because you have a PBR, your deduction would be locked in and can’t be undone.

In most cases, their document also continues to apply even when a Court or Tribunal decides that the ATO’s interpretation of the law is incorrect.

Your PBR could be overturned if the Parliament passed a retrospective law that outlawed something the ATO had specifically permitted. Fortunately, this doesn’t happen very often.

If you don’t like what the ATO says in a PBR, you can object. Within the required time frame, you firstly ask the ATO to review their work. They then have the same time to come back to you with their reconsidered views.  If you’re still unhappy, you can object either in the Administrative Appeals Tribunal or Federal Court.

A specific Commonwealth law demands that the ATO publishes PBRs. It does this on its website – http://www.ato.gov.au/rba/search/

Prior to publishing, they remove all relevant information about the specific taxpayer. I find these rulings a valuable source of information and give an excellent insight into what some taxpayers are planning on doing.

2) SMSF Specific Advice

These are very similar to PBRs except they involve superannuation legislation – for example, Limited Recourse Borrowing Arrangements, the types of pensions your fund can pay, super fund investments and so on.

The key difference between these documents and PBRs is that SMSF Specific Advice documents aren’t binding on the ATO. That is, you can rely on these documents, but the ATO is free to change its mind later on.

If they change their mind, then they can seek any unpaid tax (if relevant) from you. In these cases, they probably would not apply any severe penalties as you acted on their initial information.

Because these documents aren’t binding on the ATO, it doesn’t publish them on its website.

A potential downside

It has been said to me that one reason not to ask the ATO questions via PBRs or SMSF Specific Advice is that it draws attention to you and might encourage them to have a closer look at your circumstances. This is one point to be mindful of.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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