The superannuation system is an integral aspect of Australia's retirement income system. It seeks to ensure that Australians provide for their retirement throughout their working lives. This is achieved through a combination of superannuation contributions compulsorily made by employers which may be supplemented by taxpayers' own contributions. These contributions are given concessional tax treatment up to a certain limit. Where this limit, or 'cap', is exceeded, the Australian Taxation Office (ATO) may issue an excess contributions tax (ECT) assessment to the taxpayer, resulting in additional tax becoming payable depending on the type of contribution.236
With a view to making the concessional contributions cap fairer,237 the government recently enacted legislation to grant taxpayers a one-off option to have the excess amount refunded and taxed at the taxpayer's marginal rate where they breach their contributions cap by up to $10,000 in the 2011-12 financial year or thereafter.238
The ATO has also indicated that it would not raise ECT assessments where breaches of the concessional contributions cap are small — in some instances small breaches of the concessional contributions cap have resulted in large tax liabilities by reason of a subsequent breach of the non-concessional contributions cap.239
Notwithstanding the above ATO approach, submissions to the Inspector-General of Taxation's (IGT) work program continued to raise concerns regarding the ATO's administration of ECT. Stakeholder concerns included:
- difficulty in understanding the basis for ECT liability determinations and checking the accuracy of ECT assessments;
- inadequate consideration of taxpayer-provided information;
- ECT assessments effectively penalising taxpayers for breaching the contributions caps in circumstances beyond the taxpayer's control; and
- insufficient public guidance on ECT, particularly with respect to 'special circumstances' in which the Commissioner may exercise his discretion to disregard or reallocate the excess contributions, leading to a perception that there is a reluctance to or inconsistencies in the exercise of this discretion.
This IGT review is one of three concurrent reviews examining the ATO's compliance approach to individual taxpayers. It aims to explore the underlying causes for these concerns with a view to identifying opportunities for improvement.
The other two reviews conducted in this area are the review of the ATO's income tax refund integrity program and the review of the ATO's use of data matching.
Terms of Reference
In accordance with subsection 8(1) of the Inspector-General of Taxation Act 2003 (IGT Act 2003), the IGT will review the ATO's administration of the ECT with a specific focus on:
- The clarity and comprehensiveness of ATO advice and guidance on the ECT, including those relating to the Commissioner's discretion to disregard or reallocate excess contributions.
- The timeliness of the ATO's ECT assessment.
- The ATO processes for making ECT assessments, including:
- processes for verifying the accuracy of information upon which it relies;
- procedures for requesting and considering information provided by taxpayers and tax practitioners; and
- the consistency and appropriateness of the exercise of the Commissioner's discretion to disregard or reallocate breaches of the contributions caps.
- The quality of the ATO's communications with taxpayers and tax practitioners on ECT matters, particularly the extent to which it enables the taxpayer to understand the case against them and actions they may take to address the ATO's concerns.
- The adverse impacts that the ATO's administration of ECT can have on taxpayers and tax practitioners and the ATO's support to minimise these impacts.
The IGT invites you to provide written submissions to assist with this review. The IGT envisages that your submission will be divided into two parts:
- your experience dealing with the ATO on the ECT; and
- opportunities for improvement.
Your experience in dealing with the ATO
It is important to provide detailed accounts of your experiences in dealing with the ATO. It would be useful to provide a time line of events outlining your key interactions with the ATO including any correspondence, telephone communications, information requests and responses from the ATO (if applicable). It would also be helpful to understand the time taken to deal with the ATO and any costs you incurred, such as engaging a tax practitioner to assist in these dealings. Separately tax practitioners may wish to comment on and outline any irrecoverable costs incurred.
It is important to provide details of specific factors, including the ATO practices and behaviours that, in your view, delayed resolution of the issue at hand and resulted in increased costs and impact to your personal or business affairs. The IGT also seeks examples of positive factors in the ATO's compliance approach and management of the ECT.
The following questions are designed to assist you in setting out your experiences.
Questions for Consideration — your experience
Q1. How did you become aware that your contributions cap had been exceeded? If the ATO contacted you first, how did they do that? Did the ATO provide you with sufficient information for you to understand the reasons for the breach?
Q2. What was the amount of the breach? What circumstances gave rise to the breach?
Q3. Did you consult the ATO website, or any other published ATO advice or guidance regarding ECT prior to making your contribution? If so, do you consider that this information was easily accessible and sufficiently informative?
Q4. Did you seek independent advice prior to making the contribution which may have resulted in the breach? Was the advice easily accessible and easy to understand, and did this assist you in making your decision regarding the contribution?
Q5. What action did you (or your adviser) take to address the ATO's concerns regarding ECT and what was the ATO's response? When engaging with the ATO, what opportunities were you afforded to state your case? How did the ATO show that it considered the information you provided? Do you consider this ATO engagement was sufficient? If not, why not?
Q6. If an ECT assessment was issued to you after your engagement with the ATO, did you request the Commissioner to exercise his discretion to disregard or reallocate the excess contribution to another financial year? If so, what was the outcome? Did the ATO determine that you had 'special circumstances' and exercised the discretion in your favour? If not, what reasons did the ATO provide for not exercising the discretion? Did you consider that the ATO fully considered your matter? If not, why not?
Q7. Prior to lodging your request for an exercise of the Commissioner's discretion, did you consult the ATO website or other published ATO advice or guidance regarding the circumstances in which the Commissioner would exercise his discretion? Did you find this information informative and useful for the purpose of your application? If not, why not?
Q8. Were you aware that the Commissioner adopts a de minimis approach to ECT in which the ATO won't issue an assessment for small breaches of the concessional contributions cap? Are you aware of what the Commissioner considers to be a 'small breach' or in what circumstances this approach may apply?
Q9. What impact has dealing with this matter had on you? For example, did you incur additional costs such as seeking assistance from a tax practitioner? Please quantify these costs. How could these have been minimised?
Q10. If you are a tax practitioner who has engaged with the ATO in relation to ECT matters, what impact did this have on you or your practice? Were you satisfied with the level and quality of information and support provided by the ATO?
Opportunities for improvement
The IGT invites you to identify opportunities to improve the ATO's administration of the ECT and its dealings with individual taxpayers and tax practitioners in this area.
Your submission may outline alternative frameworks, actions, practices or behaviours which, in your view, could minimise costs or adverse impacts arising from the current system and its operation.
Set out below are questions to help you outline any improvements which you believe could be made in this area.
Questions for Consideration — improvement
Q1. What improvements do you believe could be made to the ATO's administration of the ECT regime?
Q2. Do you think the requirements of the ECT regime are easy to understand? Does the existing guidance provided by the ATO assist you to better understand its requirements and what you need to do to avoid breaching the caps? If not, how could the ATO better assist taxpayers to understand their obligations in relation to ECT?
Q3. Could any other parties assist taxpayers to understand their ECT obligations to minimise the risk of cap breaches? If so, which parties and how could they assist?
Q4. Could the monitoring of superannuation contribution levels be improved to minimise the risk of taxpayers exceeding their contributions caps? If so, how? Who do you think is best placed to monitor levels of superannuation contributions? Please explain your views.
Q5. Is the ATO's current approach and guidance on 'special circumstances' warranting the exercise of the Commissioner's discretion appropriate? If not, please specify the change in approach that the ATO should adopt and the type of further guidance that it should provide.
Q6. Do you believe the Commissioner's discretion is sufficiently broad to provide an exception from the ECT regime in all appropriate cases? If not, what factors do you believe should be considered for the exercise of the discretion?
Q7. Are there other specific improvements you would like to raise?
Submissions should address the terms of reference and submission guidelines set out above. It is not expected that each submission will necessarily address all of the issues and questions raised.
The closing date for submissions is 18 December 2012. Submissions may be sent by:
Inspector-General of Taxation
GPO Box 551
SYDNEY NSW 2001
fax to: 02 8239 2100
email to: [for enquiries regarding this review, please email firstname.lastname@example.org]
Submissions provided to the IGT are dealt with in strict confidence. This means that the identity of the taxpayer and/or of the tax practitioner and any identifying information contained in such submissions will not be made available to any other person, including the ATO. Sections 23, 26 and 37 of the IGT Act 2003 safeguard the confidentiality and secrecy of such information provided to the IGT — for example, generally the IGT cannot disclose the information as a result of a Freedom of Information request, or as a result of a court order. Furthermore, if such information is the subject of legal professional privilege, disclosure of that information to the IGT is protected and will not result in a waiver of that privilege.
236 Australian Taxation Office, Super contributions — too much super can mean extra tax (3 July 2012).
237 Commonwealth, Parliamentary Debates, House of Representatives, 21 May 2012, p 4913.
238 Tax and Superannuation Laws Amendment (2012 Measures No. 1) Act 2012.
239 ATO, Superannuation Consultative Committee, Minutes of the March 2012 meeting, Item 6.