Excess super contributions tax: “Perfect storm” gives taxpayer a win

He was not aware of the strict June 30 deadline for concessional contributions for employees. The director exceeded the cap when he made a contribution on June 26, 2008 resulting in an excess contributions tax liability for the 2007-08 financial year.

The AAT was satisfied there were “special circumstances” in the case so as to allow the discretion to be applied. The director identified a number of matters, which the AAT said, taken together, were enough to constitute special circumstances. The factors included:

• The taxpayer’s attempts to secure advice from his accountant before the June 30 deadline. The AAT said that “[a]t a minimum, that evidence demonstrates the taxpayer was conscious he had obligations and that he was being diligent in attempting to comply with them.” With respect, that could certainly be said of many taxpayers caught in the excess contributions net.
• The “ambiguity” regarding the ATO webpage, although the AAT noted the webpage was not misleading or wrong in relation to the employer’s position. The AAT said that “[i]n a perfect world, the ATO website would have pointed out a person concerned with an employee’s obligations with respect to concessional contributions needed to consult a different part of the website.” While the Tribunal did not think it was fair to criticise the ATO for that omission, it said it was “easy enough to see how the confusion might have arisen.” Confusion as to the application of tax and superannuation laws – heaven forbid!
• The director was not afforded an opportunity to avoid compounding the error “because the Commissioner did not alert him to the true position before the further payment was made in June 2008”. The director also noted letters he had received from his super fund and his employer confirming the July 10 contribution had been allocated to the 2006-07 financial year. The AAT said those letters were of limited assistance as they were written after the relevant financial year. However, it said they were consistent with the taxpayer’s account that “the behaviour of his superannuation fund did not give him any reason to question the correctness of what had been done”.

In concluding there were “special circumstances”, the AAT said that while it would not ordinarily accept a mere misunderstanding of one’s obligations is enough to constitute special circumstances, “there was what might be described as a ‘perfect storm’ of events, miscommunications and misunderstandings that combined to leave the taxpayer in an unusual and unfortunate position”.

In all the circumstances, the AAT decided it would be appropriate to treat the director’s case differently even though the fault, if any, attached to the taxpayer or his agent.

The AAT also observed the director’s behaviour in making regular superannuation contributions over the years and said it was apparent he intended to make a contribution in the ordinary way towards his superannuation at the end of the 2006-07 year, and that he made a further contribution at the end of the 2007-08 year. The AAT was of the view that this behaviour confirmed the director was building up his superannuation by making gradual contributions over the course of his life, as the law intends.

However, although the AAT indicated that the excess contribution was “foreseeable”, noting the taxpayer had the power to control the process in his capacity as the manager of his employer; it was nevertheless satisfied that the Commissioner’s discretion should be exercised in the taxpayer’s favour. It said: “This is a case where it was clearly intended the taxpayer would make a gradual contribution towards his superannuation, as the legislative scheme intends. While he made mistakes in the way in which he sought to comply with the rules, the legislative purpose would be frustrated if the taxpayer were penalised.”

Could that not be said of many of the excess super contributions tax cases?

Terry Hayes is the Editor-in-Chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.