Individuals receiving a superannuation guarantee (SG) make-up payment relating to previous years, such as those arising from the SG amnesty, are at risk of losing their unused concessional contribution caps, an SMSF technical expert has found.
Superology director Tracey Scotchbrook has identified this possibility as an unintended legislative consequence arising from situations where employers are looking to get their employee superannuation contributions up to date including payments relating to prior financial years.
Scotchbrook found the SG charge amounts received would not trigger an excess contribution and would effectively absorb an individual’s unused concessional contributions. As there was no mechanism in place allowing for the SG charge amounts relating to previous years to be set aside, the unused cap amounts would be lost.
“[T]he SG amount that comes in [will cause] the individual to exceed the current year cap, but because they’ve got carried forward amounts, it’s not going to trigger an excess because they’re going to have an uplift in their cap,” Scotchbrook told selfmanagedsuper.
“It’s going to have the effect of soaking these cap amounts up, which means that people who were intended to be able to use this concession, through no fault of their own, are going to lose access to that opportunity to contribute.”
The issue would also be magnified for beneficiaries of the SG charge amnesty, she added.
“SG charge amounts or unpaid super amounts at any time can now trigger this problem, but it’s because of the amnesty that I actually identified this issue,” she said.
Current tax legislation that allowed for tax commissioner discretion would only apply in situations where an excess contributions assessment arises and the excess was unforeseeable, she pointed out.
She recently raised the issue with the ATO, which has confirmed her assessment that it currently has no ability to address this situation where an excess does not occur. The regulator has also brought the issue to the attention of Treasury.
“[A] legislative change is needed to make provisions to allow any adjustments to be made so there is no disadvantage to the taxpayer,” Scotchbrook said.
In April, a group representing the professional accounting and tax practitioner bodies said the SG charge and SG amnesty were key tax policy measures affected by COVID-19 that needed to be urgently addressed by the federal government.