Despite the introduction of new rules allowing for the refund of excess contributions, the treatment of genuine mistakes still has not properly been addressed and needs review, according to a specialist SMSF lawyer.
DBA Lawyers director Dan Butler said the mechanism to grant relief for excess contributions resulting from genuine mistakes under the special circumstances definition was still not operating in a manner that would produce fair and equitable outcomes.
“Special circumstances really doesn’t work. It’s far too tight. It’s too discretionary,” Butler said.
Often people applied for relief under the special circumstances provisions due to fairly standard arrangements that had gone slightly awry, he said.
“The client may have overlooked a contribution or the employer has been a bit late in paying or it’s gone through a bPay or clearing house system that hasn’t allocated the funds on time. All of those things haven’t been factored into the equation,” he said.
“They need to ease up the law to say ‘if you’ve got a genuine mistake, that is life’. Special circumstances is not the right test.
“We need to recognise that to err is human.”
In addition to his call for greater flexibility when dealing with mistakes, he said the situation could be helped by disclosure of the boundaries applied to the de minimis rules whereby breaches deemed too small would not trigger an excess contributions tax assessment.
“We’ve asked the ATO (Australian Taxation Office) to tell us when de minimis kicks in. Is it $5000, is it $3000?” he said.
“The ATO’s response is ‘we’re not going to tell you that because then you’ll know the rules and you can play around with it’.
“How do you expect the community to obey the rules if they don’t know them? And if people manipulate the rules, you can provide for that, but it’s not the way to design the rules.”
He said three distinct and separate operating arms needed to be recognised when it came to governing the SMSF sector: the legislature, the judiciary and the administrator.
“The ATO is all three of those together and that’s trouble,” he said.
“You can’t have a process where the regulator says ‘we make the rules and we administer the rules’. It’s a magic box.”
