A taxpayer has been unsuccessful before the AAT in arguing for relief from the Tax Commissioner’s imposition of excess non-concessional contributions tax. The case concerned the 2007-08 financial year.
From July 1, 2013, excess contributions tax is generally not levied, and instead excess contributions are added to a person’s income and taxed at their marginal tax rate. Notwithstanding this change, excess contributions case decisions are still appearing from the AAT, albeit concerning previous financial years.
Although the case before the AAT concerned a retired public servant, it might be noted that self-employed people can make superannuation contributions of up to $25,000 and obtain a tax deduction for the same amount without incurring excess contributions tax. A temporary higher concessional contributions cap of $35,000 applies to people aged 60 or over from July 1, 2013 (and from July 1, 2014 for people aged 50 or over).
In the case before the AAT, to provide for his future needs, the man had contributed $430,000 into his super fund account in the 2007-08 financial year. This was acceptable as the ‘bring forward’ provisions in the law said he could make up to $450,000 in non-concessional contributions over a three-year period.
However, in September 2008 and in response to the global financial crisis, the taxpayer withdrew half the money. In September 2009, the taxpayer then redeposited $100,000 back into his super account. The Commissioner said the taxpayer exceeded the $450,000 contributions limit when he made the $100,000 payment within the three-year period under the ‘bring forward’ rule [the Commissioner claimed he had contributed $530,000 within the three-year period i.e. the initial $430,000 + the redeposit of $100,000]. The Commissioner issued an excess contributions tax assessment on the $80,000 excess.
The man was “horrified”. He argued the statute should be interpreted in a way that only catches net contributions that exceed the cap. Alternatively, he argued there were special circumstances warranting the Commissioner’s discretion to ignore the contribution, or to treat it like it had been made in a different period.
He said he was left with a large tax bill that felt like a penalty, and the tax legislation ought to be interpreted in favour of the subject in those circumstances. He said he should only pay tax on net contributions that exceed the cap. The Tax Commissioner however said the legislation did not provide for that outcome. He explained there was good reason for that: a system in which a taxpayer was allowed to calculate a balance after putting money in and taking it out would result in the superannuation fund being treated like a bank.
The man claimed the GFC was an unusual event, he was ignorant to the requirements of the law and thought there would be no adverse tax consequences as he thought putting money into super (especially the same money previously contributed) was what the government was encouraging, and that his superannuation fund did not warn him against exceeding the cap.
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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.
