The taxpayer asked the Tax Commissioner to exercise his discretion under the law that there were “special circumstances” to therefore enable the Commissioner to reallocate the contribution to the 2008 year (meaning the contributions caps would not have been breached). The AAT, however, agreed with the Commissioner that the correct application of the law meant there were no “special circumstances” to warrant exercise of his discretion.
The case was not about a taxpayer contributing “excessive” amounts over the caps. Evidence put before the AAT was that the taxpayer had made numerous enquiries with her employer before making the $90,000 contribution to her self-managed super fund to ensure that she would not be subject to excess contributions tax. In other words, she intended to contribute within the caps. If the taxpayer’s contributions had been made as she intended, the relevant caps would not have been exceeded. The case was essentially about what many may describe as the “nit-picking” and overly prescriptive rules that accompany making superannuation contributions.
Another issue that arises for employers in the paying of superannuation contributions is paying them into a clearing account. The employer can’t be sure when the payment is actually credited to the super fund account, and it’s that date that the Tax Commissioner considers the super contribution to be “made”. When those two dates are in different income years, excess super contributions tax can occur, generally to the horror of the super fund member. SMEs should check if their super contributions for their employees are going to a clearing account.
Add to this recent press reports suggesting that life insurance premiums sold through superannuation are about to soar, perhaps by around 30%. Super fund members should remember that insurance premiums through super paid by their employer on their behalf constitute superannuation concessional contributions and count towards the (absurdly low) $25,000 concessional contributions cap. More excess contributions tax assessments will surely follow.
True, there is a refund option for concessional contributions up to $10,000. But it is a one-off. The Commissioner can give eligible individuals a once-only option to effectively be refunded (without penalty) excess concessional contributions up to $10,000 and instead have them assessed as income at their marginal tax rate. However, that does not solve the problem as it is not a solution for many taxpayers who breach their cap by more than $10,000 or for contributions before July 1, 2011.
Something has to happen. Change has to happen. Shadow assistant treasurer Senator Mathias Cormann says the Coalition will “fix the problem … to make sure that Australians are not unfairly penalised for genuine unintended errors when making superannuation contributions”. That’s fine, but will all those who have been caught in the excess super contributions tax take (including the more than 65,000 people affected in 2010-11), be entitled to a refund?
Senator Cormann said that, based on the most recent figures available, the government had “collected more than $108 million in excessive additional taxes from people making additional voluntary savings to help them achieve a self-funded retirement, but where somebody along the way made an inadvertent mistake”. That represents $108 million taken out of people’s superannuation retirement savings and put into consolidated revenue!
Indeed, something has to be done. On one hand, the current $25,000 concessional super contributions cap (regardless of age) is simply too low. As well, the law surrounding the levying of excess contributions tax and the ability of the Tax Commissioner to exercise his discretion needs urgent attention.
Of course, if I’ve got it all wrong, please ignore all of the above!
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.
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.
