ATO – Excess contributions tax, lodgement issues
At the SISFA (Small Independent Superannaution Funds Association) forum held in September 2010, a keynote speech was delivered by Stuart Forsyth, the ATO’s Assistant Commissioner Superannuation.
This was an excellent presentation, providing great insights into a number of area’s including the issues that the ATO are focussing on in the coming year. The following article is the second in a three part series that provides a summary of the key points from the ATO that both trustees and advisers need to be aware of.
Excess contributions tax (ECT)
One of the key points in Stuart’s speech was the fact that the ATO have had significant re-reporting of SMSF contributions. While much of the re- reporting is to correct errors, an increasing concern is that some of the fund information that is re-reported is not correct, occurs immediately after the ATO have notified the member that they may have an ECT liability and is aimed at reducing or removing the liability. Be very aware that the ATO are intensifying their scrutiny of this type of re-reporting. It was made clear that the number of people having potential excess contributions was greater than expected, and that one of the main reasons was poor contribution reporting practices by funds.
The ATO are also seeing a number of taxpayers applying for use of the Commissioner’s discretion to disregard or reallocate contributions for the purposes of ECT. However, you should be aware that the law places strict limits on the application of the discretion and the ATO can only disregard or reallocate contributions where:
- you have received an ECT assessment
- there are special circumstances
- doing so is in line with the purpose of ECT, which is to ensure that the amount of concessionally taxed super a person will receive results from contributions they’ve made to accumulate super gradually over time.
Applicants for discretion will need to demonstrate why they believe their circumstances are special. Special circumstances are those that have been legally defined as unusual, exceptional, abnormal or uncommon and where applying the law would result in an unjust, unfair or otherwise inappropriate outcome. Simply having to pay ECT is not a special circumstance. Not understanding how the law would apply to you – including getting incorrect professional advice – and exceeding a cap unintentionally is also generally not a special circumstance.
Lodgment
Whilst most DIY Superannuation funds lodge their annual return on time, there are many that are still not doing so, despite ATO reminder notices. As a result, the ATO have begun a pilot exercise involving nearly 250 SMSFs and have issued each fund with pending default assessments of 45% of the fund’s assets, less non-concessional contributions. If a fund continues to refuse to meet their lodgment obligations despite several contacts , the ATO will have no choice but to make the fund non-complying.
The integrity of the SMSF system depends on willing engagement in the system. Funds which continually refuse to fulfil even their most basic requirements have no place in the SMSF sector. Note that the ATO will also consider prosecuting trustees who fail to meet their lodgment obligations. From 1 July 2009 to 30 June 2010, 280 SMSF trustees were prosecuted, resulting in 327 convictions for failure to lodge by the due date with fines and costs totalling close to $652,000 (some funds had more than one conviction).
See part 3 for a continuation of this series.
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