The Australian Taxation Office’s (ATO) interpretation of excess contributions tax is “too narrow”, according to Peter Bobbin, partner at Argyle Lawyers.
Bobbin told the 2011 Self Managed Super Fund Professionals’ Association of Australia (SPAA) national conference that the ATO view of discretion is too narrow as the tax is affecting middle and upper-middle Australians.
“The anecdotal evidence that I’ve got from dealing with [financial planners] is: Who gets hit with the contribution tax?” he said.
“It’s not hitting the high net-worth and it certainly doesn’t hit the poor buggers that can’t afford to put anything into super, or not much at all.
“It’s actually hitting middle and upper-middle Australians, which from a political perspective is absolutely insane.
“I think that message needs to be told across all the political parties – that they’re at risk if they don’t do something about this particular tax.
The ATO defined approximately 35,000 cases of excess contributions for the 2007/8 financial year. Contributions to a superannuation fund that exceeds both concessional and non-concessional caps in a financial year could end up being taxed at 93 per cent overall.
In addition, the ATO has admitted that 10 per cent of super member contribution statements or the annual return for self-managed superannuation funds (SMSFs) are incorrect.
“So that can in fact be a good place to start. Was the information given to the tax office itself incorrect in some manner?” Bobbin said.
He said it’s “a tax that’s out of control … I just read the philosophy [for the tax] and think it’s a joke; it’s an excuse”.
“If what the Government actually did was to help the tax office in changing some of these rules to enable them to open up its thinking, because it’s not open, then it would ameliorate quite a lot of the problems that exist.
“I’ve seen people’s retirement funds decimated [and] substantially affected by this contributions tax.”
He challenged the terminology of ‘genuine inadvertent breaches’ and said it is a mistake in almost all cases.
“Does you know anyone who’s actually intended to make excess contributions? My experience is that it’s absolutely inadvertent.”
Bobbin also said that the concept of special circumstances in its practice statement is also written too narrowly by the ATO.
“They seem to want to look at it from an objective ‘fact’ situation,” he said.
“So they want to look at all the facts and they’ve decided based upon the facts as to what special circumstances may be.
“It is not about the objective facts, it’s all about the person and that’s the way special circumstances need to be looked upon and assessed.
“We’re here to find out and work out what’s fair and reasonable so it’s a very malleable concept and principle, which is one of the reasons why the tax office made a mistake because it’s looked at it from a doctrinal perspective.
“I’m having a go at the tax office because the interpretation approach they’ve taken is in my view too narrow. At the end of the day, they’ve just got to administer what is essentially a bad law.”
Bobbin said that not making reasonable enquiries with clients is “a major problem for the financial services profession”.
“There are hundreds of claims against financial planners in the excess super contribution [area],” he said
“I’m aware of one dealer group that paid out $3 million in compensation payments.
“You need to go back. You need to ask, ‘What’s happened in the current year? What happened in the year prior and the year prior to that?’
“You need to understand every element [of your client’s actions] as it relates to contributions.”
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