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On 13 May 2014 the Inspector-General of Taxation released a report on its Review into the Australian Taxation Office’s compliance approach to individual taxpayers — superannuation excess contributions tax.

The IGT has made two recommendations for the government to consider regarding the superannuation excess contributions tax (ECT) regime. One of these recommendations is aimed at situations where taxpayers exceed the concessional or non-concessional caps through matters beyond their control or a genuine mistake whilst the other recommendation targets excess non-concessional contributions more generally.

Nine other recommendations have been made which, in the main, seek to improve the administration of the ECT through further ATO assistance being provided to taxpayers in monitoring their contribution levels. The ATO has agreed in full, in part or in principle with eight of these nine recommendations. The ATO has disagreed with a specific recommendation directed at the de minimis concession.

The IGT’s recommendations are as follows.

Structure of the ECT

The IGT recommends that the government consider whether the ECT regime provides an appropriate treatment for excess non-concessional contributions, particularly in relation to low income taxpayers, with the aim of minimising the adverse impacts by such means as:

  • refunding excess contributions
  • a charge to neutralise any benefits on concessionally-taxed earnings from those contributions, and
  • a deterrent factor that is commensurate with the targeted taxpayer action.

The ATO responds that this is a matter for government.

The IGT recommends that the ATO:

(a) ensure that pre-assessment letters are issued to taxpayers within six months of the ATO receiving all relevant information

(b) periodically assess the efficiency and effectiveness of the systems and processes in identifying and communicating instances of excess contributions to improve their timeliness and efficiency, and

(c) promptly notify taxpayers when they have triggered the “bring forward” provision.

The ATO agrees with (a) and (b), and agrees “in principle” with (c).

The IGT recommends that the ATO update its public guidance on genuine mistakes leading to excess contributions to reflect those circumstances in which mistakes may be effectively corrected and those in which it may not.

The ATO agrees with this recommendation.

In the event that Court decisions do not provide a basis on which the Commissioner may broaden the scope of his discretion in the ECT context, the IGT recommends that the government consider whether the current protections afforded to taxpayers sufficiently take into account circumstances of genuine mistake or matters beyond their control and if legislative change is required to provide further taxpayer protection.

The ATO responds that this is a matter for government.

The IGT recommends that the ATO seek an appropriate test case vehicle to obtain a judicial declaration on the effectiveness of contributions limiting clauses to cap the amount of contributions made to superannuation funds.

The ATO agrees with this recommendation.

The ATO’S ECT end-to-end process

The IGT recommends that the ATO:

(a) publish further information on its ECT de minimis approach, including, how the ATO identifies and treats such cases and what taxpayers can do if they consider that their case qualifies for “de minimis” consideration but have nonetheless received an ECT assessment, and

(b) inform taxpayers when the de minimis approach has been taken in relation to their excess contributions.

The ATO disagrees with these recommendations.

The IGT recommends that the ATO improve its correspondence with taxpayers on ECT matters by:

(a) updating the pre-assessment and determination letters to include the quantum of contributions reported by each superannuation fund, and

(b) user-testing all new standardised correspondence to evaluate their effectiveness in generating the intended taxpayer response.

The ATO agrees “in principle” with (a), and agrees with (b).

The IGT recommends that the ATO:

(a) provide taxpayers, their representatives and superannuation funds with assistance to correct superannuation fund data errors relating to taxpayer contributions, and

(b) widely communicate, for example through its website, newsletters or industry consultation forums, the availability of this assistance.

The ATO agrees with these recommendations.

The IGT recommends that the ATO:

(a) improve the search functionality for ECT discretion decisions and require relevant ATO officers to search and have regard to all relevant decisions when considering whether to exercise the Commissioner’s ECT discretion

(b) update its public guidance to include guidance on commonly occurring factual scenarios in discretion applications, and

(c) review existing public guidance to ensure that wording used, particularly in examples of the exercise of the Commissioner’s discretion, does not create perceptions of insensitivity.

The ATO agrees in part with (a), and agrees with (b) and (c).

The IGT recommends that the ATO update its internal instructions to encourage direct engagement with taxpayers and their advisers, particularly:

(a) where the ATO is requesting information which may be aged or complex

(b) to discuss how information provided has been considered and how it will impact any proposed decisions, or

(c) where taxpayers specifically request meetings with ATO officers to discuss their circumstances or any information which has been provided.

The ATO agrees with these recommendations, but says that, with regard to (c), it should be noted that meetings requested by taxpayers would generally be via phone, not face to face.

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