The Administrative Appeals Tribunal (AAT) has upheld an ATO decision to impose an excess contributions penalty and rejected a taxpayer’s claim a divorce-related superannuation split constituted special circumstances under taxation law.
The case involved a taxpayer, BVZH, who went through a divorce that resulted in a split of his total superannuation balance of $1,820,792 with his former wife, with the majority of the funds held in the Commonwealth Superannuation Scheme and an SMSF.
The taxpayer’s superannuation balance dropped by $427,497 as a result of transferring an amount from the proceedings, bringing his total super balance to about $1.39 million in 2020.
In June 2020, believing his reduced balance allowed him to make a non-concessional contribution, BVZH deposited $100,000 into his SMSF. He later admitted to making this contribution as an “honest mistake” and had not sought legal or accounting advice before making it.
The ATO issued a determination and imposed an excess contribution penalty of $47,000 because his non-concessional contributions cap was determined to be nil as his balance exceeded the $1.6 million general transfer balance cap at the start of the financial year.
BVZH contested the decision and argued the circumstances of his divorce and superannuation split constituted special circumstances under section 292-465 of the Income Tax Assessment Act (ITAA) 1997, which would allow his contribution to be reallocated or disregarded.
However, the regulator rejected the taxpayer’s argument, stating divorce and superannuation splits were common occurrences and do not qualify as special circumstances under the section of the ITAA referenced by BVZH.
Dissatisfied with the result, he took the matter to the AAT to challenge the ATO’s decision, with the tribunal dismissing the taxpayer’s claim and agreeing with the regulator that a reduction in a superannuation balance as a result of divorce did not meet the legal definition of special circumstances set out in the ITAA.
“Quite clearly, as he contended, had he made the non-concessional contribution of $100,000 in the subsequent financial year, the non-concessional contributions for that year would not have been exceeded,” AAT senior member Robert Cameron stated.
“As has been observed, the cases where special circumstances have been found for the purposes of Division 292, and therefore the discretion enlivened, are very few indeed.
“A feature of most of the cases where special circumstances have been found to have arisen are due to the taxpayer being actively misled or otherwise acting under a misapprehension as to particular circumstances which have been caused or induced by acts or omissions of others.
“In this case the predicament that the applicant finds himself in was solely due to his failure to understand the application and effect of section 292-85(2) of the ITAA.”
