Check your super – now!
The taxpayer, Mr Nadim Hamad, was a member of AustralianSuper. At Hamad's request, a salary sacrifice arrangement existed between him and his employer, whereby funds were paid on his behalf to AustralianSuper. However, he exceeded the $50,000 concessional superannuation contributions cap for the 2009-10 financial year by $10,068. The Tax Commissioner issued an excess contributions tax assessment of $3,171.
Hamad made salary sacrifice payments each month with the intention to stay below the relevant cap. He made salary sacrifice payments of $5,000 per month, but when the concessional cap was reduced to $50,000, he reduced his payments to $4,000 per month initially, and then to $3,000 per month.
The Tribunal heard that the disputed payments occurred because salary sacrifice amounts for the months of April, May and June 2009 were not transferred by his employer to the super fund until July 2009. Hamad said he was unaware of the delay and that, operating from his monthly payslips, he was of the belief that the sums had been transferred to the fund.
There was no agreement between Hamad and his employer as to when salary sacrifice amounts would be transferred by the employer to the super fund.
One could well imagine this is a common situation for many people, that is, they follow their super via their monthly payslips and reasonably assume the payments are transferred to their super fund each month.
AAT Senior Member Allen found that special circumstances existed to warrant the disputed amounts being attributed to the 2008-09 financial year. He was also of the view Hamad's behaviour, in making regular contributions, demonstrated that he was building his super by making gradual contributions over the course of his life (per the objective of the relevant laws). The Tribunal noted that if the July 2009 payments had been credited to the 2008-09 financial year, then Hamad's concessional super contributions would have amounted to $48,000, that is, under the relevant cap and no tax penalty would be levied.
In finding there were "special circumstances", the Tribunal member said recent AAT decisions "seem to have adopted an unduly narrow interpretation" of what may constitute "special circumstances". In particular, Mr Allen suggested that the decision in an earlier AAT case, which took the view that circumstances will not be special unless they are out of the ordinary, was "misconceived". The Tribunal member was of the view that "something unfair, unintended or unjust" could be a ground for finding special circumstances.
The Tribunal said Hamad intended to make a contribution in the earlier period but it was his employer that, for reasons best known to the employer, did not transfer the monies until the new financial year. The AAT echoed similar comments to those made in the Bornstein AAT case earlier this year to the effect that while Hamad might have failed to comply with the letter of the rules, he had clearly complied with their spirit, "and it would be perverse to penalise him in all the circumstances". Hallelujah, I hear you say!
The Commissioner had argued that the overpayment was reasonably foreseeable as Mr Hamad had received notices from his super fund for periods ended June 30, 2009 and December 31, 2009 which showed that continued payments would result in excess payments for the 2009-10 year. Although the Tribunal agreed, it said "it was perfectly reasonable for [Hamad] to envisage that his employer would make the payments when they were shown in the payment advises issued to him each month". That is an important statement by the AAT in applying what one would consider is a common sense approach.
In the end result, the AAT found that "special circumstances" did exist in the matter in that, despite his checking from his payment advices, Hamad "was positively misled by his employer, improperly in [the AAT's] opinion, retaining amounts directed to superannuation and making late payments". Accordingly, the excess contributions tax assessment was set aside.
The result in this case seems entirely reasonable and rational. While the law provides that the onus is on the taxpayer to satisfy the Tribunal that "special circumstances" exist, it is nonetheless disappointing that the taxpayer had to incur the time and cost of placing the matter before the AAT when a reasonable review of the facts might have prevented the need for such action.
The "take-homes" from the case are that people should check their payslips about their super contributions (especially year-to-date amounts) and know when your super contributions are paid into your super fund by your employer – it might even be prudent to have an agreement with your employer that actually stipulates the date when super contributions are transferred to the employee's super fund.
One can't help but feel that many of these excess super contributions cases are catching out people that the law never really intended be subject to excess super contributions tax. (A cynic might even suggest it's just a tax grab!)
Terry Hayes is the Editor-in-Chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.