ATO discretion now more critical

ATO contributions discretion

The ATO’s limited ability to use its discretionary powers to disregard non-concessional contributions made in error has new found significance.

A technical specialist has reminded advisers of the strict parameters the ATO has established with regard to exercising its discretion over superannuation contributions made in error and how they are now more important than ever.

SuperGuardian education manager Tim Miller noted the regulator confirmed its position on the issue as part of the case SQQM and the Commission of Taxation (Taxation) [2022] AATA 298.

The case saw the superannuant make non-concessional retirement savings contributions of $100,000 in 2019 when they were not eligible to do so. This was due to the fact their total super balance was around $2.5 million – well in excess of the $1.6 million threshold as determined by the general transfer balance cap at the time.

In order to avoid having the $100,000 treated as an excess non-concessional contribution the plaintiff argued the ATO should exercise its discretional power and determine the amount was paid into the super fund under the special circumstances provisions thus allowing it to be disregarded.

Justification to have the regulator declare the contribution was made under special circumstances, and therefore able to be disregarded and not treated as an excess contribution was based on the individual’s past and ongoing health issues, the fact the superannuation fund’s website confirmed a contribution of $100,000 was allowable, and an acknowledgement the person’s accountant did not inform them the amount would be treated as an excess contribution.

“Basically the ATO came back and said difficult personal [situations] do not warrant special circumstances. So this lady’s health, her long-term health and her current health issues, were not [considered to be] enough to determine whether or not you do or don’t make the contribution to superannuation,” Miller told attendees of his latest technical webinar.

He pointed out the regulator made it clear ignorance of the superannuation legislation was not a valid reason to have ATO discretion applied either.

“[The ATO also said] even if the adviser or the accountant had given you incorrect advice then that itself wouldn’t warrant special circumstances to have the excess contribution disregarded.

“The kicker to all of this was because [the individual’s total super] balance was greater than $1.6 million, which was the general transfer balance cap [at the time], their [non-concessional] contributions cap was zero.”

According to Miller this case’s outcome is particularly significant now given the recent changes in superannuation law have ruled out any circumstances where contributions made in error can be refunded.

“The reason that I highlight this now is we’re fresh into [the income year] 2022/23, we’re [only just] six months in, and we’re fresh into these new rules about the acceptance of contributions,” he said.

“[So] we’ve had ultimately 10 years plus of excess non-concessional contributions where there has always been this whole [concept of] if you don’t meet the work test and you’re over 67 or 65 then you could return the contribution.”

Due to these change in regulations, and the subsequent inability to refund amounts paid into a superannuation fund in error, he warned it is more important than ever for individuals to realise if their total super balance is over $1.7 million then their non-concessional contributions cap is zero.

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