Special circumstances for excess contributions tax

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Excess contributions tax special circumstancesWhere there have been excess contributions to superannuation an application can be made to the ATO Commissioner for the contributions to be disregarded or reallocated to another financial year, if there are ‘special circumstances’.

The rules for such an application are set out in the Income Tax Assessment Act 1997 (ITAA 97), section 291.465 for excess concessional contributions and section 292.465 for excess non-concessional contributions.

These sections say the ATO Commissioner may make a determination that excess contributions should be disregarded or reallocated where there was been special circumstances and “making the determination is consistent with the object of this Division.”

This section says that the commissioner “may have regard to:”

  • if the contribution would “more appropriately be allocated towards another financial year”
  • if it was “reasonably foreseeable” the contribution would result in excess contributions
  • the terms of an agreement relating to the “amount and timing of the contribution”
  • the “extent to which you had control over the making of the contribution”

There have been a number of examples of the Administrative Appeals Tribunal (AAT) considering special circumstances, usually after the ATO has denied a request for disregarding or reallocating the excess contributions. Though in only a few cases has the tribunal overturned the ATO’s decision, including:

  • Bornstein and Commissioner of Taxation
  • Longcake and Commissioner of Taxation
  • Hamad and Commissioner of Taxation

Cases with ‘Special Circumstances’

Bornstein and Commissioner of Taxation [2012] AATA 424 (6 July 2012)

In this case the taxpayer was the sole director of a company. While overseas the taxpayer contacted his accountant and checked the ATO website, for details of the timing of superannuation contributions.

The AAT notes that the ATO website discussed the 28 day period for employees, but did not “refer to the consequences for an employee when contributions are made after the end of the financial year”.

Contributions were made to the super fund on the 10th of July 2007, with the taxpayer “thinking it could be backdated to the previous financial year.” Another contribution was made on the 26th of June 2008, triggering excess contributions. If they had been made in the years the taxpayer thought they would apply there would have been no excess contributions.

The AAT found that taking advice from the accountant, though it was not documented, the ambiguity of the ATO website and the inability of the taxpayer to rectify the situation constituted “special circumstances.”

The AAT decided that the amounts should be allocated to the years in which the taxpayer intended.

The ATO website has since been updated to discuss this timing issue.

Longcake and Commissioner of Taxation [2012] AATA 576 (30 August 2012)

The taxpayer was an employee and member of two superannuation funds. The excess concessional contributions were triggered largely because contributions relating to June 2009 were received by the funds in July 2009. This includes amounts under a salary sacrifice arrangement.

The ATO said that the contributions “followed an irregular pattern,” including late payments and so it was “reasonably foreseeable” there would be excess contributions. The reason for this appear to be cash-flow issues in the small business which employed the taxpayer.

The ATO also said the salary sacrifice agreement “did not provide that contributions were to be made in the same month they were received.” However a letter from the employer did state “salary sacrifice contributions, will be paid to your superannuation fund on a monthly basis”

The taxpayer was aware at the time of the changes in the contributions cap from the 2008/09 to the 2009/10 financial year. The contributions were transferred by electronic transfer on 30 June, and were acknowledged by the super fund on the 7th and 8th of July. The taxpayer partially blamed cash flow issue in the business for the late payment, though the amounts included superannuation guarantee, which was within the 28 days required.

The AAT found that when the contributions were made it was not “reasonably foreseeable” to the taxpayer that excess contributions would result. The tribunal also found that the taxpayer “did not control the timing of the contributions to his superannuation funds.” The AAT did note the confusion between employees and employers of the 28 day period in which to make superannuation guarantee contributions.

The AAT decided that there were special circumstances and that the contributions received in early July should be reallocated to the previous year.

Hamad and Commissioner of Taxation [2012] AATA 530 (26 July 2012)

The taxpayer was an employee and member of an APRA-regulated super fund. They exceeded the concessional contributions cap for the 2009/10 financial year, largely as result of a salary sacrifice arrangement where a contribution for the April, May and June periods was received by the fund in July 2009.

The AAT noted that had the contributions been received in the 2008/09 financial year there would not be excess contributions.

The ruling says “it was perfectly reasonable for the Applicant to envisage that his employer would make the payments when they were shown in the payment advices issued to him each month.”

The AAT found that there were special circumstances, as the taxpayer was “positively misled by his employer, improperly in my opinion, retaining amounts directed to superannuation and making late payments.” It appears the AAT thought the payslips were misleading in showing the amounts accrued, unlike some other rulings there was not a detailed discussion of the differences between the rules for when a contribution is received and when an employer is required to make a contribution. The AAT said the amounts should be reallocated.

Cases with no ‘Special Circumstances’

Compare these to some of the examples where no special circumstances was found.

Commissioner of Taxation v Dowling [2014] FCA 252 (19 March 2014)

This case went to the AAT, was appealed to the Federal Court and then went back to the AAT:

This was the Federal Court considering a ruling by the AAT that there were special circumstances for the taxpayer. When reconsidered by the AAT after the court ruling it was found there was not special circumstances.

Mr Dowling had been advised, for Centerlink purposes, to withdraw his superannuation and for it to be contributed into Mrs Dowling’s superannuation fund. Later Mrs Dowling saw in the media reports a strategy for minimal tax being paid by estate beneficiaries from superannuation. Without seeking advice she withdrew an amount from her superannuation and re-contributed it, triggering excess contributions.

When reconsidered by the AAT it noted that “the term ‘special circumstances’ has been held to mean something unusual or different, outside the ordinary course of events” and “erroneous or deficient professional advice and reliance on media reports have also been said not to satisfy the requirement of special circumstances.”

The AAT found there was not special circumstances.

Liwszyc v Commissioner of Taxation [2014] FCA 112 (20 February 2014)

This was another excess contributions tax case that made it to the Federal Court.

A number of concessional contributions were made to an APRA-regulated super funds for the taxpayer, including amounts paid on the 30th of June and 1st of July in some financial years. Due to when these contributions were allocated to the member by the super fund this resulted in an assessment for excess contributions tax.

The taxpayer argued that “a late payment to a superannuation fund by an employer on behalf of an employee for a prescribed employer contribution or salary sacrifice constitutes ‘special circumstances’”

However the tribunal said:

In my view, the better argument is that the contribution was made on the date the funds were actually received. Once that is understood (and, indeed, as part of the context), nothing in the ITAA 1997 permits a taxpayer or a superannuation provider to deem a contribution to have been made on a date other than the date on which it was in fact made. Stipulating by some covering email or communication that it is intended for some other date, namely, the date on which the BPay entry was made, does not change the reality of the actual date of receipt.

Thompson and Commissioner of Taxation [2014] AATA 339 (29 May 2014)

The taxpayer was advised to make a large, but not directly excess contribution, to a APRA-regulated fund. The member also withdrew an amount from this fund as a lump sum and invested it personally. Later in the same financial year the member started an SMSF, and contributed some of the money from the lump sum to the SMSF, resulting in excess contributions.

The taxpayer made three arguments to support special circumstances, that the money contributed was the ‘same money’ as withdrawn from super, that they had received incorrect advice, and it resulted in ‘difficult personal circumstances’.

The tribunal rejected each of these arguments and found there was not special circumstances.

Tran and Commissioner of Taxation [2012] AATA 123 (28 February 2012)

The taxpayer, who was over 65 at the time, made contributions totalling $159,016 to two superannuation funds. $139,016 was contributed as the result of financial advice, a further $20,000 was made without further advice.

“The applicant asserted that her contributions were based on her interpretation of media reports, via television and newspaper, to the effect that non-concessional contributions of up to $450,000 could be made over a period of three years. She argued that the information as released via the media was incomplete because it failed to mention special conditions applicable to individuals over the age of 65 years,” says the AAT ruling.

The tribunal found there was not special circumstances.

Chantrell and Commissioner of Taxation [2012] AATA 179 (23 March 2012)

This case involved a contribution being paid to a super fund on the 30th of June 2007, which was a Saturday. Because of this the contribution wasn’t received by the fund until the 2nd of July. The AAT said that the taxpayer had “elected to take a variety of risks inherent in leaving the transaction until the last day of the financial year,” and found there were no special circumstances.

Note that ATO ruling TR 2010/1 says that “the contribution will be made when the funds are received by the superannuation provider.”

Naude and Commissioner of Taxation [2012] AATA 130 (28 February 2012)

The taxpayer had a salary sacrifice arrangement with their employer. The taxpayer arranged for a reduced salary sacrifice amount from July 2007, when the contribution caps changed. However the contribution for June 2007, paid by cheque, was received by the fund in July 2007. The taxpayer applied to have a contribution received in July 2008 reallocated to June 2008.

The Tribunal acknowledged the timing difference between when contribution is required to be made for employers and when it is counted as received for employees. However it also said that “in relation to salary sacrifice contributions, the timing of any concessional contributions depends upon the terms of the salary sacrifice agreement.” The agreement in this case did not require that the contribution was to be made “in the same month they were accrued or at any particular date.”

The Tribunal found there were not special circumstances.

The ATOs views on special circumstances can be found in PS LA 2008/1: The Commissioner’s discretion to disregard or reallocate concessional and non-concessional contributions for a financial year

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