Another Taxpayer Win in Respect of Excess Contributions

Another taxpayer has had a win against the ATO.  The taxpayer was issued with an excess contributions assessment and, after the required objection procedures had been completed, referred the matter to the AAT.

Concessional contributions of about $71,500 were made for the taxpayer in respect of the 2009/10 financial year.  About 10% of the contributions were SG contributions and the balance was salary sacrifice contributions.  The ATO held that the taxpayer had $21,500 of excess concessional contributions and imposed tax of about $6,700.

The taxpayer argued that about $25,000 of the contributions, while received by the Super Fund in July 2009 were, in fact, intended to be made in June 2009 and therefore should be counted for the 2008/09 financial year. If they were to be counted for the 2008/09 financial year, no excess contributions would have arisen in respect of either the 2008/09 or the 2009/10 financial year.

Importantly, if not crucially for the taxpayer, the taxpayer had a salary sacrifice agreement with his employer that concessional contributions in respect of the 2008/09 financial year would be paid to Super Fund No 1 and concessional contributions in respect of 2009/10 financial year would be paid to Super Fund No 2.  Further, the salary sacrifice agreement specified the amount of the concessional contributions would not exceed $50,000 for the 2008/09 financial year and would not exceed $25,000 for the 2009/10 financial year.

Additionally, the AAT accepted that the taxpayer had no control over the timing of the payment of his employer contributions,  that the unevenness of the cash flow of the employer did affect the timeliness of contribution payments and the employer was genuinely confused between the time standards for SG purposes as against contribution cap purposes.

Collectively these matters constituted special circumstances and the AAT determined that the $25,000 concessional contribution should be reallocated to the 2008/09 financial year.

While the existence of a salary sacrifice agreement and the terms of that agreement greatly assisted the taxpayer (it is fair to say that in the absence of these factors, the taxpayer would have been unsuccessful), merely having a salary sacrifice agreement will not solve each and every excess concessional contribution problem.

While it would be possible for a salary sacrifice agreement to contain a provision that all contributions in respect of a particular financial year must be paid on or before the end of the financial year, most employers would not be willing to accept such a term.  The acceptance of such a term in a salary sacrifice agreement would expose the employer to liability for the financial consequences of failing to comply with the deadline: ie the cost of excess contributions would be transferred from the employee to the employer.

Reference Longcake v Commissioner of Taxation [2012] AATA 576