WHAT YOU NEED TO KNOW

The ATO has released the Law Administration Practice Statement PS LA 2023/1, which provides ATO staff with guidance on the relevant matters to be considered when deciding to give a trustee (or a director of a corporate trustee) of an SMSF a rectification direction for contravening the SIS Act.

WHAT IS A RECTIFICATION DIRECTION?

A rectification direction is a written notice the ATO gives to a person within a stated period that requires them to:

• take specified action to rectify the contravention, such as repay a loan or borrowing, dispose of an asset or lodge a return, and
• provide the ATO evidence showing they have complied with the direction.
  
  

The term ‘rectify’ includes putting in place managerial or administrative arrangements that could reasonably be expected to ensure there will be no further contraventions of a similar kind. Therefore, a rectification direction may also require establishing preventative measures and controls so that a contravention is not repeated. It may also require corrective action.

KEY ASPECTS

This Practice Statement explains that a rectification direction can be given where there is a reasonable belief that a person has, on or after 01 July 2014, contravened a provision of the SIS Act (other than Pt 3B) or the SIS Regs.

A rectification direction can only be given to a person who is:

• an individual trustee of an SMSF, or
• a director of a corporate body that is a trustee of an SMSF.
  
  

The general principles and case-specific factors should be considered when deciding whether to give a rectification direction. Case-specific factors include all of the following:

• any financial detriment that might reasonably be expected to be suffered by the fund due to the person complying with the direction.
• the nature and seriousness of the person’s contravention, and
• any other relevant circumstance (e.g., whether proactive steps had been taken to rectify a contravention before the regulator commenced action).
  
  

This Practice Statement also:

• provides guidance on timeframes for compliance with a rectification direction, stating that up to six months will generally be sufficient to rectify most contraventions, with up to twelve months in extreme cases.
  
  

Clarifies whether:

• a rectification direction can be revoked or varied after it has been given.
• an administrative penalty applies if a person fails to comply with a rectification direction.
• a person can object to the decision to give a rectification direction or not to vary a direction.
  
  

Confirms that any costs associated with complying with a rectification direction will need to be considered when weighing up the expected financial detriment to the SMSF to comply with a rectification direction. In considering whether to issue a rectification direction, the ATO will need to consider all costs imposed on the SMSF trustee(s) to ensure that the cost of rectification is not disproportionate to the contravention.

DATE OF EFFECT

PS LA 2023/1 takes effect from 30 March 2023.

WE’RE HERE TO HELP!

If you have any issues, questions or feedback regarding our monthly SMSF Bulletin or if you’d like clarification or further advice on the content of this month’s edition or any other SMSF audit concern – don’t hesitate to reach out to me at +61 416 123 446 or email trosati@rosatiwang.com.