Excess contributions tax – new rules to provide some (limited) relief

Federal Parliament is considering proposed amendments to deal with the excess contributions tax regime and the unjust outcomes that can arise from taxpayers making inadvertent errors.

In practice, excess contributions tax assessments have been triggered by inadvertent errors or circumstances beyond the taxpayer’s control. The Commissioner’s narrow reading of the existing legislative discretion means that taxpayers have often struggled to get relief once an excess contributions tax assessment has been issued.

The proposed reforms

The Tax and Superannuation Laws Amendment (2012 Measures No. 1) Bill 2012 gives some individuals the option to have excess concessional contributions taken out of their superannuation fund and assessed at their marginal tax rates, rather than incurring the potentially higher effective rate of excess contributions tax.

The fine print

This measure is only available where:

• individuals have excess contributions of $10,000 or less;
• there are no excess concessional contributions for an earlier financial year; and
• the excess contributions arose in the 2012 or later income year.

Once an individual has excess concessional contributions in any financial year from 2012, the individual will no longer be eligible for the refund option in any subsequent year. It is a ’once in a lifetime’ opportunity.

Also, if the individual exceeds their concessional contributions cap in more than one financial year before receiving notification from the Commissioner, then they will only be eligible for a refund for the first year.

The refund option does not apply to excess concessional contributions made before the 2012 income year.  However, any excess concessional contributions for a year prior to the 2012 income year are disregarded in determining eligibility for refund in later years.

The notice of the refund offer will be issued in much the same way as the existing letter the Commissioner sends to individuals prior to making an excess contributions tax assessment.

While the individual cannot object to the offer, the individual can still:

• advise the Commissioner that the contribution amount is incorrect and discuss with their superannuation provider the need to have the amount of concessional contributions re-reported; or
• apply for the Commissioner to exercise his discretion to disregard or reallocate to another financial year the excess concessional contributions.

We have successfully applied to the Commissioner to exercise his discretion to disregard or reallocate excess concessional contributions in a number of cases.

Please contact us if you would like to discuss.