WITH the concessional super contribution limit $25,000 a year for everyone from July 1, there is an increased chance more people will be paying excess super contributions tax.
Despite the Tax Office having taken an inflexible attitude that maximised the collection of this tax, there has been some recent good news.
The tax-maximising attitude of the Tax Office has been supported by recent statistics. For the three financial years from 2008 to 2010, the Tax Office received 4221 applications for the commissioner to exercise his discretion not to impose the tax. Only 1037 applications were granted.
Despite this abysmal record, the first piece of good news comes from the ATO in the form of the minutes of a meeting of the superannuation consultative committee in March.
The committee is the consultative forum the Tax Office organised to gain input from professional, industry, and business groups about the administration of superannuation.
At the March meeting, the Tax Office outlined a new approach it would be taking when a small breach of the concessional super contributions cap caused a breach of the non-concessional cap. When this occurs, penalty tax of 93 per cent can be imposed on the excess concessional super contribution.
But it did not say what it regarded as a small breach. However, sources believe that this would be excess contributions of up to $5000.
In a surprising move, the Tax Office advised that it would be applying this principle to all future cases and past cases as far back as the 2008 financial year. This would be done by identifying the relevant cases and sending letters and an amended assessment to those individuals.
Anyone who paid the tax and has not yet received a letter from the Tax Office should apply in writing to have the policy applied to their case.
The final piece of good news comes from a surprising win by a taxpayer in a case brought before the Administrative Appeals Tribunal against the Commissioner of Taxation.
The taxpayer had made a super contribution on July 10, 2007, in the belief that it would be classed as a 2007 contribution, but the ATO classed it as a 2008 contribution, causing an excess contribution.
The request by the taxpayer for the commissioner to exercise his discretion and allocate the contribution to the 2007 year was refused. The AAT decided for the first time in favour of a taxpayer with regard to an excess contribution because of the confusion caused for the taxpayer by advice on the ATO's website. It is not known if the ATO will appeal.
Frequently Asked Questions about this Article…
What is the concessional super contributions cap and why does it matter for investors?
The article explains the concessional super contribution limit is $25,000 a year for everyone from July 1. It matters because if you exceed this cap you may face excess super contributions tax, so everyday investors need to watch their pre-tax (concessional) contributions.
What is the excess super contributions tax and how severe can the penalty be?
When a concessional contribution breaches the cap and causes a breach of the non‑concessional cap, the penalty tax on the excess concessional contribution can be as high as 93% in some cases, according to the article.
How has the ATO historically handled applications to avoid excess super contributions tax?
The article says the Tax Office took an inflexible, tax‑maximising approach. Between the 2008 and 2010 financial years it received 4,221 applications for the commissioner to exercise discretion, but only 1,037 applications were granted.
What recent change did the ATO announce about small breaches of the concessional cap?
According to minutes from a superannuation consultative committee meeting, the ATO outlined a new approach for cases where a small concessional breach causes a non‑concessional breach. The ATO said it would apply this principle going forward and to past cases back to the 2008 year.
What counts as a 'small breach' of concessional contributions?
The ATO did not formally define 'small breach' in the minutes, but the article reports sources believe this would cover excess concessional contributions of up to $5,000.
Will the ATO reassess past excess contribution cases and how will affected people be contacted?
Yes. The article states the ATO intends to identify relevant past cases (as far back as the 2008 financial year) and send letters and amended assessments to those individuals.
I already paid excess contributions tax—what should I do if I haven't heard from the ATO?
The article advises anyone who has paid the tax but not yet received a letter from the ATO should apply in writing to have the new policy applied to their case.
What was the Administrative Appeals Tribunal (AAT) decision mentioned and why does it matter for everyday investors?
The article describes an AAT win for a taxpayer who made a contribution on July 10, 2007 expecting it to count in the 2007 year, but the ATO treated it as 2008, causing an excess. The AAT sided with the taxpayer, citing confusion caused by advice on the ATO's website. The decision shows that AAT review can succeed where ATO guidance caused genuine confusion, though the article notes it's not known if the ATO will appeal.
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