There could be a slight softening in the ATO’s treatment of concessional contributions cap breaches by SMSF members, writes Darin Tyson-Chan
Since the government decided to slash the superannuation concessional contributions caps to $25,000 per year, numerous superannuation fund members have been in breach of this limit prompting the Australian Taxation Office (ATO) to issue them an excess contributions tax (ECT) liability notice.
And as a result of breaching the concessional cap some really unlucky souls have also breached the non-concession cap putting them in the firing line of a hefty ECT penalty as high as 93 per cent. And from the anecdotal evidence I’ve heard self-managed superannuation fund (SMSF) members have been hardest hit.
Faced with the disproportionate magnitude of this punishment many members have taken their case to the Administrative Appeals Tribunal (AAT) to have the ATO’s original assessment overturned.
In doing so, most have relied on having their predicament seen as “special circumstances” to allow the ATO the use of its discretionary powers to reallocate the contributions to be recognised in other relevant financial years. Unfortunately just about every one of these appeals has fallen on deaf ears.
But just when all looked lost, one significant development surfaced last year suggesting perhaps there has been and will be in future a slight softening in the ATO’s treatment of these matters.
This victory came via the AAT’s decision in Bornstein v Commissioner of Taxation.
In this case the member, who was a retail fund member, was a sole director of a company that made regular superannuation contributions in June of each year. However in 2007 the member was going to be overseas in late June and early July.
To clarify his situation as to when he had to make his company’s super contributions he referred to the ATO website to find there was a 28-day grace period for contributions to be accepted in relation to the 2006/07 financial year.
The member also tried to confirm with his accountant if the 28-day grace period applied or if the contribution had to be made before 1 July, 2007, a query to which it is unknown if he received a satisfactory reply.
The contribution was eventually made on 10 July, 2007 and a further contribution was made in June 2008. The ATO treated both contributions as being made in the 2007/08 year placing the member in breach of the contributions cap and up for an ECT liability.
The member subsequently appealed he had special circumstances as neither his accountant nor the ATO website had indicated the 28-day grace period only applied to SG contributions and not cases of ECT. As such he argued the ATO should for ECT purposes treat the 10 July contribution as pertaining to the previous financial year.
While the AAT ruled neither the advice from the member’s accountant nor the information on the ATO website constituted “special circumstances” the circumstances assessed together were enough to constitute “special circumstances”.
Furthermore in light of the “special circumstances” and the history the company had of making contributions in June of each year, the ATO should exercise its discretion and reallocate the contribution to the 2006/07 year.
While the decision flies in the face of previous rulings it represents a small glimmer of hope for SMSF members in particular, but all other superannuants as well that proper recourse against such harsh penalties may now be more readily attainable.
Darin Tyson-Chan is editor of self managed super, a new publication dedicated to the SMSF practitioner. If you would like a free year’s subscription to the magazine and its associated e-newsletter valued at $100 send your details to info@bmarkmedia.com.au.
