Contributions cap taking its toll

Many individuals caught out

By Darin Tyson-Chan
Fri 26 Feb 2010

The new superannuation contributions caps are catching out more people than expected.

The number of individuals affected by the new superannuation contributions caps has exceeded the Australian Taxation Office's (ATO) expectations, with estimates of those breaching the rules falling short by nearly 33,000 people.

"Initially when people were getting hit with excess contributions warnings, the indicators from the ATO were about 2000 people potentially impacted. The most recent estimate last week from the commissioner was over 35,000 people," DBA Lawyers principal Daniel Butler said.

Under the existing legislation the commissioner of taxation has discretionary powers to disregard or reallocate contributions that exceed the caps, but is in the main declining the applications for relief he is receiving, according to Butler.

"The ATO does have discretion, they are just not willing to exercise it because they believe it's very tight," he said. "The commissioner needs special circumstances, which he has made very clear is not going to happen too easily."

Butler said he was hoping the new regulations and its ensuing penalties would be applied with the same leniency as the goods and services tax when it was first introduced.

"The commissioner reminded me that this is not a penalty. It's a primary tax. He said unless it becomes a political issue, the ATO has to continue to administer the rules as it has been," he said.

The hard line adopted by the ATO was witnessed in a recent DBA case, where an individual breached the contributions caps at a time when several loved ones were terminally ill.

In these circumstances it was argued that it was an unintentional error brought about by the stress of the situation that had clouded the client's thought processes, so no penalties should apply.

The ATO rejected the appeal, saying despite difficulties in the client's personal life, the timing of the super contributions should still be managed.

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