Excess Contributions Tax Assessment

The Tax Commissioner recently advised that the ATO has identified 35,000 potential cases of excess contributions from the 2007/08 tax year which involve a significant tax liability.

While it is not unlawful to make excessive contributions, there is a very material tax disincentive to make such contributions – excess contributions tax.

The ATO is currently contacting taxpayers who have been identified as having received excess contributions for 2007/08 to determine whether the excess is due to incorrect classification of contributions (eg reporting CGT non-concessional contributions as ordinary non-concessional contributions);  reporting rollovers and transfers as contributions; or simply incorrect attribution of contributions in respect of another member.

While the Commissioner has a discretion to disregard an excess contribution or to reallocate an excess contribution to another tax year, this discretion will only be exercised if there are special circumstances (a significant hurdle) and the imposition of excess contributions tax would be unjust, unreasonable or inappropriate.  Mere ignorance of the contribution caps, mistakes as to the amount of contributions made, failure to keep track of contributions or reliance on incorrect professional advice will not cut the mustard.