Applicant v FCT [2013] AATA 110 - ATO discretion to disregard or re-allocate excess contributions discretion - not to be used to overcome taxpayer’s own procedural defects

This is a relatively straightforward case.  The taxpayer intended to contribute $480,000 to super with $30,000 as a concessional contribution and the balance, $450,000, as non-concessional contributions.  If the taxpayer had correctly implemented this strategy, there would have been no excess contribution issues.

The taxpayer did not make any claim for a deduction in respect of the $30,000 as the taxpayer had insufficient taxable income against which the entire $30,000 could be offset.  In fact the taxpayer has only about $6,000 of taxable income for the contribution year.

Further, the taxpayer made no attempt to attend to the formalities of claiming a tax deduction for the intended personal contribution.

The taxpayer commenced a pension almost immediately after the contribution was made.  This action alone would have precluded the taxpayer from claiming a deduction for $30,000 of the contributions (assuming the taxpayer had sufficient taxable income). 

A precondition for claiming a tax deduction for personal contributions (thereby changing the contributions from non-concessional to concessional) is that a prescribed notice must be completed by the taxpayer and provided to the trustee of the relevant super fund.  If a pension is commenced and the account balance of the pension includes or is based upon those contributions, the notice of intention to claim a tax deduction in respect of those contributions will be invalid. 

The reason why the notice is invalid is that the tax free component of the pension has to be determined (or be determinable) at the commencement of the pension.  As all contributions are non-concessional contributions (and thereby form part of the tax free component) unless and until a valid and effective notice of intention to claim a contribution is made.  Such a notice changes the contribution from non-concessional to concessional.  This would have the flow on effect of altering the tax free component of the pension as well as the account balance of the pension after the pension has commenced.  As these attributes of the pension must be settled before the pension commences, any notice of intention to claim a deduction must be invalid.

The ATO held that the taxpayer had excess non-concessional contributions for the year and issued the usual excess contributions tax notice.  The taxpayer appealed to the AAT on the basis that the ATO should exercise the discretion to disregard in part the contribution.

The AAT, not unsurprisingly, declined to exercise the discretion as there were no special circumstances.  The AAT noted that the discretion has not been conferred on the ATO to remedy defects in the formalities for claiming a tax deduction or to remedy insufficient assessable income against which to “claim” a deduction for the personal contributions.