Mistakes by the Australian Taxation Office resulting in letters detailing incorrect excess non-concessional contributions (NCCs) have been cropping up more frequently, according to an adviser, causing client panic and extra work for industry professionals.
The Wealth Designers financial adviser Dawn Thomas tells Professional Planner if the ATO portal is not providing the correct information, the adviser can implement a strategy that is unsuitable for the client.
“What happens is that when someone has done their tax return, [the ATO] will also then look at superannuation contributions that have come through,” Thomas says.
She says there have been instances where clients had received letters about excess non-concessional contributions.
“The first instance was that my client had used the bring forward rule, meaning they’ve used three years’ worth of non-concessional contributions, and they were notified that they were over by about $200,000,” Thomas says.
“In the letter it will say something like you’ve got to release this really large sum of money that is going back to the ATO.”
She warns that if the client does not respond to the ATO with an option regarding the release of funds, the ATO just will take the money out of the fund.
Sorting out the error usually requires bringing in an accountant or tech team, which is extra cost to the client.
Thomas says clients who have found themselves in this situation have had a difficult experience trying to deal with a “pretty nonchalant” ATO.
“If you try and get the client to call the ATO they may be given the runaround, but if you go straight to the accountant, [they] have a more direct line,” Thomas says.
‘Source of truth’
Thomas says the ATO portal is supposed to be “the source of truth” and so advisers need access to it.
She references another instance where the client did not receive a letter, but the portal showed there were excess contributions for the current financial year.
“The ATO portal is also aimed to make sure that everybody’s on the same page with what’s happening, because as an adviser, we have to rely on what clients are telling us,” Thomas says.
She warns advisers the issue of only looking at reporting from the super fund might only provide a partial view and the client might not be aware of potential mistakes regarding excess non-concessional contributions.
“Even something as simple as $2 over your yearly non-concessional contribution will trigger the bring forward rule.”
The Financial Advice Association Australia included ATO portal access in its pre-budget recommendations. Its submission recommended the introduction of “a new read-only class of access to the ATO portal for licensed financial advisers”.
The role of funds
Thomas admits the ATO is not always at fault for errors, as it can be due to incorrect reporting by the fund, although she says is rarely the case.
Therefore, when checking a client’s excess NCCs, advisers must ensure they know where the problem lies and therefore where to rectify.
Thomas says some of the rectification processes involving the ATO have taken around a year as the release of funds takes a long time to get back.
“You wonder whether the reporting system is actually set up in a manner that actually supports the legislation.”
She clarifies that she considers the superannuation system “fantastic” and that these cases, while damaging, are rare.
“I’ve got no issues with how the system is set up, but I think it’s how the system applies the legislation.”
