An excess contributions case: overestimating taxable income

A recent AAT case has highlighted another example of the difficulties of managing superannuation contributions and the ease with which excess contribution problems can arise.  In this particular case, the taxpayer made a personal contribution of $50,000 and gave the trustee of the super fund the relevant notice indicating that she was claiming the entire contribution as a tax deduction.  The super fund accepted the notice and reported the contribution to the ATO as a concessional contribution.

When the taxpayer lodged her income tax return for that year, the taxpayer could only claim $13,468 as a tax deduction, as this claim reduced her taxable income to nil.  The ATO accepted that $13,468 constituted concessional contributions.  However, as the taxpayer could not claim the balance (being $36,532) as a tax deduction, the ATO treated the balance as a non-concessional contribution.

The maximum tax claim which can be made in respect of a personal contribution is the remaining assessable income of the taxpayer after all other deductions have been claimed.  In the taxpayer’s case the remaining assessable income of the taxpayer after all other deductions had been claimed was $13,468.  Consequently, the maximum tax deduction which could be claimed in respect of the personal contribution of $50,000 was $13,468 and the excess ($36,532) was treated as a non-concessional contribution.

Unfortunately for the taxpayer, she had made a personal contribution of $450,000 within the preceding two years so the entire $36,532 was, therefore, excess non-concessional contributions which gave rise to a tax liability of $16,987.38.

The planning error for the taxpayer was the overestimation of taxable income against which the deduction for the concessional contributions could be claimed.  This kind of overestimate can easily arise where a taxpayer has previously carried on a business and then sold or retired from the business.  In this situation, the taxpayer may have considerably lower assessable income against which the deduction for the contribution can be claimed.

Case Reference: [2013] AATA 661