One of the Tax Institute’s priority issues for the Government to consider in framing this year’s Budget is excess superannuation contributions tax.
Superannuation laws, since their introduction, have been amended time and time again by Governments to the point that many Australians are now confused about their rights and obligations with respect to the superannuation system. The changes in contribution caps have resulted in many people inadvertently breaching the caps and attracting a liability for excess super contributions tax of up to 93%.
In the 2009 income tax year, approximately 30,000 taxpayers were identified as having potentially breached the contribution caps. Many of these taxpayers will have breached the caps due to factors largely outside their control such as where the taxpayer has two or more unrelated employers meeting their respective superannuation guarantee responsibilities, pre existing salary sacrifice arrangements and/or fixed contribution arrangements. Others will have made genuine mistakes, perhaps at a time of personal stress or grief, and may have been unaware of the significantly onerous consequences of their actions.
Compounding the problem, the Commissioner of Taxation has construed his discretion to disregard or reallocate contributions very narrowly, leaving most taxpayers who have inadvertently breached the contributions cap without remedy. Approximately 80% of applications lodged by taxpayers for an exercise of the Commissioner’s discretion are denied.
Such an outcome is contrary to the principles on which our taxation system is based and may discourage investment in superannuation funds (for fear of breaching the cap) by the very taxpayers whom the Government intended to encourage contributing to superannuation due to their impending financial needs during retirement.
We are working closely with the Government to amend the superannuation laws such that excessive contributions can be returned to the contributor. Employees should be allowed to elect out of the super guarantee system in situations where excessive contributions would arise. Such measures should ensure that unintentional beaches of the caps could be rectified, whilst preserving the policy intent of the caps.
Please see below for other activities this week.
Robert Jeremenko FTIA