26/06/2014

The case involved Ms T, a woman who had retired after reaching her preservation age. In 2009, she received financial advice to place $400k into a retail super account.  At this time, Ms T was below the non-concessional contributions cap using the "bring forward provisions".  

In simple terms the non-concessional contributions cap (NCC) is the maximum contribution a person can make to their super in any one year, for which they do not claim a tax deduction.  Currently it is $150,000, and has been so for a number of years, effectively reducing the cap over time when inflation is taken into account.

The bring-forward provisions allow a person to make three-years' worth of NCC at the one time ($450,000).  No further non-concessional contribution is possible until the three years expires.

A month or so after investing the $400k into the retail account, Ms T withdrew just over half of that amount and placed it into her own personal bank account before moving that whole amount  over into her SMSF.  In other words she had contributed $400K at one point and then a further roughly $200K some time later.  The total was $600K, well in excess of the cap even though it was effectively the same money.

After looking at the transactions, the Tax Commissioner found that Ms T had breached her NCC cap and was therefore liable to the higher excess contributions tax rate.

Ms T failed to have the determination changed and so appealed to the Tribunal to have the excess contributions overlooked due to "special circumstances" – a provision that allows for excess contributions to be disregarded if the individual is found to have experienced something uniquely different or unusual to the usual circumstances seen.

The Tribunal had to determine if Ms T's case was in fact "special", and whether overlooking her excess contributions was in line with the objectives of the law, which here were to ensure "that the concessional tax benefits a person receives is made gradually over the person’s life".

In presenting her case, Ms T advanced a number of arguments, primarily focusing on the fact that whilst she had withdrawn money from her super account, she had put the same amount back in again, effectively cancelling the transaction out. If this was the case, Ms T would not be in breach of the NCC cap.

The Tribunal rejected Ms T's argument, stating that having super did not create some sort of account that a person could just deposit and withdraw from anytime they choose. Even if Ms T was unaware that she could not move her super in this way, it was not enough to force the commission to change to its made.

Ms T failed to sway the Tribunal on her other arguments and the decision enforcing the higher tax rate was upheld.

Thankfully, there is some good news for those who breach in the future.

Unlike Ms T, those who breach their contribution limits from 1 July 2013 can organise to refund their excess without being slugged a high tax rate.  

Note that the fund can only do that if its trust deed permits it to do so.  You or your adviser should check the deed carefully beforehand.  

Whilst you should always be diligent in remaining under the NCC cap, there is now a bit more breathing room when it comes to excess contributions!

If you operate a private self managed superannuation fund and your deed does not have the necessary power, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222 to arrange an amendment.