As you might be aware, the Switzer Super Report gives you the ability to ask us questions. My job is to answer all the tricky regulatory cases you send in.
In quite a few cases my response to a question is to encourage the questioner to approach the Australian Tax Office (ATO) and request either a ‘Private Binding Ruling’ (PBR) or ‘SMSF Specific Advice’.
Based on the frequency of this answer, I’m going to tell everyone why applying for these documents may be a good course of action for you if you’re unsure about a transaction you would like to make for your fund. Before I deal with this point though, I need to explain the difference between PBRs and SMSF Specific Advice.
PBRs vs SMSF Specific Advice
A PBR is issued when you ask the ATO questions about a specific tax law – for example, ‘Can I claim a tax deduction for my super contributions?’
The tax laws give you specific protection if you rely on the final version of a PBR as long as you’re using a ruling that relates to you and to current tax law.
If the ATO’s interpretation in a ruling document is found to be wrong, for example, because of a Court decision or because the ATO changed its mind about how a particular law works, then the ATO can’t go back and claim tax and other penalties from you if you’ve relied on a faulty ruling.
The tax laws don’t allow the ATO to issue PBRs in relation to the super laws, which is why SMSF Specific Advice documents have become necessary, but importantly, they aren’t binding on the ATO. The ATO reserves the right to change its mind, but it says it won’t take adverse action if you followed an SMSF Specific Advice document prior to any amendments.
These documents solely look at the super laws; for example, is my business property ‘business real property’ as defined in the super laws?
It costs nothing
The advantage of asking the ATO for a PBR or Specific Advice is that the request can be made for free if you apply yourself.
It goes without saying that the major reason most of us are attracted to super is because of the tax concessions. But if we breach the super or tax laws, then the penalties can be severe. PBRs and SMSF Specific Advice documents therefore give us peace of mind – they allow us to complete or commence a transaction knowing that the ATO won’t take action against us if they later audit our super fund and find something wrong with that particular transaction.
Word your question wisely
A word of warning about these documents – the answer you get is only as good as the question that’s asked. When someone shows me a PBR or SMSF Specific Advice, I generally ask for a copy of the question that has been asked.
You apply for these rulings by completing specific application forms on the Tax Office website:
SMSF Specific Advice: http://www.ato.gov.au/content/00206984.htm
I suggest you only apply for these rulings before you commence a transaction. If by chance you apply for a ruling after completing a transaction and the ATO says via the ruling that you’ve done something wrong, then clearly you’ll need to take some corrective action to fix it.
Important information: 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. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.