$200k tax bill leads to FSCP action

A relevant provider has received a written direction from the Financial Services and Credit Panel (FSCP) regarding advice related to the tax impact of a superannuation rollover.

In its latest determination, issued on 17 December, the panel issued a written direction regarding advice provided to a client in June 2023.

The advice, which related to a superannuation rollover, meant the client had to pay $201,365 in tax.

“The relevant provider gave advice in June 2023 recommending a client roll over $2 million from an untaxed state superannuation scheme,” the FSCP said.

“When giving the advice, the relevant provider failed to take into account or disclose that the $2 million exceeded the untaxed cap rollover limit of $1,650,000, that the client had also previously used a portion of this limit and that tax would be payable at a rate of 47 per cent on amounts exceeding the cap.

“As a result of accepting the advice, the client paid tax of $201,365 from exceeding the cap.”

The FSCP resolved that the relevant provider contravened sections 961B(1), 961G and 921E(3) of the Corporations Act, specifically they did not demonstrate compliance with Code of Ethics’ value of diligence and Standard 5.

Standard 5 of the Code of Ethics details that all advice and financial product recommendations that you give to a client must be in the best interests of the client and appropriate to the client’s individual circumstances. The adviser must be satisfied that the client understands their advice, and the benefits, costs and risks of the financial products recommended and must have reasonable grounds to be satisfied.

As a result, the relevant provider has 60 days to obtain the agreement of an independent person with expertise in financial services law and to provide this information to the Australian Securities and Investments Commission (ASIC). This individual must then:

• Have the independent person audit, at his own cost, the next 10 pieces of advice that he intends to provide to a retail client.
• Have the independent person record, in writing, any changes that are recommended to each piece of advice being audited.
• Have the independent person provide a copy of the documents described to the Australian Financial Services (AFS) licensee.
• Subject to approval of the AFS licensee, implement any changes to the advice or advice documents as recommended by the independent person.
• If the AFS licensee does not approve of the changes to the advice or the advice documents as recommended by the independent person, keep a record explaining why the changes were not made.

Once this is complete, the independent person will provide a report to ASIC.

Earlier this month, a relevant provider received a written reprimand after the FSCP said they provided incorrect advice on a client’s non-concessional contributions cap. Other than taking no action, a written reprimand is the lowest level of action available to the FSCP.

“The relevant provider gave advice in January 2023 recommending a client make a superannuation non-concessional contribution of $329,000 in the 2022–23 financial year when the client’s non-concessional cap for that year was $220,000,” the FSCP said.

“When giving the advice, the relevant provider failed to obtain or take into account the client’s superannuation assets in the client’s PSS pension fund. As a result, the client needed to withdraw $120,735 from their superannuation and pay tax on the associated earning of $13,570.”