When validating the SMSF Annual Return, I receive the following error:
CMN.ATO.SMSFAR.436332: Gross payments subject to foreign resident withholding amount required - if there is an amount greater than zero at 'Credit for tax withheld - foreign resident withholding', then there must be an amount at 'Gross distributions from partnerships', 'Gross distributions from trusts' or 'Other income'.
This is a validation error coming from ATO's end.
BGL have sought clarification with the ATO and have received the following response:
The error you encountered reflects the impossibility of an SMSF having both a Credit for tax withheld – foreign resident withholding and exempt current pension income (ECPI) in the same income year. Consider the following:
- Foreign resident withholding only applies to payments made to non-Australian residents.
- A Credit for tax withheld – foreign resident withholding can only be claimed by a non-complying SMSF since a complying SMSF must be an Australian resident at all times.
- Only complying funds can have ECPI.
- the SMSF was complying and it can have ECPI but cannot have a Credit for tax withheld - foreign resident withholding, or
- the SMSF was non-complying and it can have Credit for tax withheld - foreign resident withholding but it cannot have ECPI.
You may be either:
- Misclassifying the amount that they are trying to report at Credit for tax withheld – foreign resident withholding (label H2) – for example, it may be that it is actually a Foreign income tax offset which should be reported at label C1.
- Incorrectly reporting ECPI for a non-complying SMSF.
If you have reported all amounts at the correct labels and you believe that you genuinely are eligible to have both ECPI and a Credit for tax withheld - foreign resident withholding, you can lodge on paper.
It is recommended that you review the transactions you have entered for the fund and also check with the fund auditor. If everything has been recorded correctly, you can lodge the return by paper. The ATO will then review this on their end and contact the trustees or tax agent for further information.