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TD 2021/D6 and PS LA 2021/D3 – Commissioner’s discretion under subsection 304-10(4) of the Income Tax Assessment Act 1997

The Tax Institute welcomes the opportunity to make a submission to the Australian Taxation Office (ATO) in relation to Draft Taxation Determination TD 2021/D6 Income tax: tax treatment of a superannuation benefit when the Commissioner exercises the discretion in subsection 304-10(4) of the Income Tax Assessment Act 1997 (Draft TD) and Draft Practice Statement Law Administration PS LA 2021/D3 Superannuation - Commissioner's discretion where members receive benefits in breach of legislative requirements (Draft PS LA), (collectively the Draft Guidance).

In the development of this submission, we have consulted with our National Superannuation Committee to prepare a considered response which represents the views of the broader membership of The Tax Institute.

Subsection 304-10(4) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a superannuation member does not need to include an amount covered by subsection 304-10(1) in their assessable income where the Commissioner is satisfied that it would be unreasonable to do so. The Draft Guidance provides further detail regarding the relevant factors and circumstances in which the Commissioner may exercise this discretion.

Although we broadly welcome greater clarity around how the Commissioner will exercise his discretion in respect of subsection 304-10(4), we consider that there are a number of issues that should be further expanded upon in the Draft Guidance. In particular, we consider that the Draft PS LA should provide further guidance and clarity on the differences between an illegal early access scheme and a genuine mistake by a member or trustee. We also consider that the events and circumstances following an incorrect withdrawal should be examined and appropriately dealt with, ensuring that the system promotes self-correction and redress of mistakes. Finally, we consider that the Draft Guidance should take into account the taxpayer’s surrounding events or circumstances, such as the amount of the tax-free component that would be assessed were the discretion not exercised, and the real cost of penalties on taxpayers.

Submission prepared by:

The Tax Institute

Submitted to:

Australian Taxation Office

For more information, contact:

Abhishek Shekhawat
Associate Tax Counsel, The Tax Institute
02 8223 0013

Published: 4 February 2022