Among recent changes related to superannuation taxes are:
Extra 15 percent super contributions tax for high income earners
The superannuation law has recently been amended so that the effective contributions tax for certain concessional contributions (up to the concessional cap) has been doubled from 15 percent to 30 percent for “very high income earners”. Those earners are individuals with income (plus relevant concessional contributions) above a $300,000 threshold.
In January 2014, the Tax Office will start issuing the first assessments for the new Div 293 tax for individuals above the $300,000 high income threshold for the 2012–2013 financial year.
The Tax Office says it will determine who is liable to pay the Div 293 tax by adding together an individual’s income for surcharge purposes and “low tax contributions”.
The Tax Office says that if these amounts total more than $300,000, individuals are liable to pay the extra 15 percent Div 293 tax on their “low tax contributions” (essentially concessional contributions). As a result of this new Div 293 tax, the effective contributions tax has been doubled from 15 percent to 30 percent for certain concessional contributions (up to the concessional cap) for “very high income earners” with income (plus the relevant concessional contributions) above the $300,000 threshold.
The Commissioner says Div 293 tax debts generally need to be paid 21 days after receipt of the notice of assessment, although there may be a part of the Div 293 tax debt that is deferred. Deferred debts are attributed to defined benefit accounts and do not need to be paid until the end benefit is taken from defined benefit funds. Importantly, the Tax Office notes that there are no additional requirements for the SMSF annual return in respect of the Div 293 tax.
No relief from excess super contributions tax bill
The AAT has affirmed the Tax Commissioner’s decision to impose excess non-concessional contributions tax on an individual in relation to excess super contributions he had made in September 2009.
Essentially, the taxpayer had withdrawn and redeposited his superannuation monies in an attempt to mitigate the effects of the global financial crisis. The Commissioner claimed the individual had breached the so-called “bring forward rule”, which provides a $450,000 cap on non-concessional contributions for every three-year period for people under age 65.
The AAT did not accept the individual’s argument that his super fund should have warned him of the danger of breaching the $450,000 limit. The AAT also did not expect the individual to necessarily understand the law himself; however, it did expect that the individual “might have asked for some advice”.
The taxpayer had contributed $430,000 into his super fund account in the 2007–2008 financial year. However, in September 2008 and in response to the global financial crisis, the taxpayer withdrew half the money. In September 2009, the taxpayer then redeposited $100,000 back into his super account. The Commissioner said the taxpayer exceeded the $450,000 contributions limit when he made the $100,000 payment within the three-year period under the bring forward rule. The Commissioner issued an excess contributions tax assessment on the $80,000 excess.
The taxpayer argued that the statute should be interpreted in a way that only catches net contributions that exceed the cap. Alternatively, he argued there were special circumstances warranting the Commissioner’s discretion under the Income Tax Assessment Act 1997 (ITAA 1997) to ignore the contribution or treat it as if it had been made in a different period. The taxpayer claimed that the global financial crisis was an unusual event, he was ignorant to the requirements of the law, he thought there would be no adverse tax consequences as he thought putting money into super (especially the same money previously contributed) was what the Government was encouraging, and his super fund did not warn him against exceeding the cap.
The AAT affirmed the Commissioner’s decision. It said the section of the ITAA 1997, which explains how to calculate non-concessional contributions in a given year, refers to “each” contribution and not the net contributions made. It also held that the situation did not enliven the discretion sought by the taxpayer. The tribunal said that, even if it did conclude that there were special circumstances it was still required to have regard to the matters referred to in the specific section of the law.
In particular, the AAT noted the taxpayer’s difficulty in whether it was reasonably foreseeable that a contribution would exceed the cap. The AAT did not accept the taxpayer’s expectation that the super fund should have warned him of the risks. Further, while the AAT did not expect the taxpayer to necessarily understand the law himself, it said it “would have thought the taxpayer might have asked for some advice”. The AAT said there was “no particular reason (other than the fact it gets the taxpayer out of trouble) why it was more appropriate to allocate the payment to another year of income”.
If you have questions about these developments, contact your adviser.