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  • What is an MCS amendment?

    What do systems and processes need to deliver?

    Legally an MCS is a statement to the Commissioner under section 390–5 of Schedule 1 of the Taxation Administration Act 1953 (the TAA) about:

    • contributions received and,
    • attributes of member accounts.

    But at the more practical level we know it as an annual flow of member data from all of your systems to our ATO systems. It is your own automated and manual processes that we all rely upon to make that flow of data happen each year and play your role in driving all the processes administered by the ATO that are based on that data.

    Similarly an MCS amendment can be thought about like this: legally it’s a statement under section 390–155 of the TAA to correct a material error or omission in an MCS previously provided to the Commissioner.

    But more practically it should be seen as a regular flow of data from your systems to ours that picks up individual changes when they are made in your registry systems and ensures they are reported to us within 30 days. For larger funds it therefore needs to be at least a regular monthly flow of data. But it needs to only occur when:

    • changes are material (I'll talk more about this later), and
    • the effect is on a previous year’s reporting, rather than a change effective from now on, and with an impact only on future reporting.

    If we all understand this high-level way of seeing amendments then we can all ensure that there are systems in place that efficiently meet the key objectives.

    To illustrate this in more detail, let's think about a couple of examples.

    Example: A refund of contributions triggers an amendment

    When an administrator’s staff are satisfied that an employer should be refunded contributions made by them in error 12 months ago, the impact on reporting should be automatic. A super fund's systems and manual procedures should be designed to ensure that adjustments to member accounts routinely trigger the lodgment of MCS amendments when the amount of the change is material for a particular account.

    Example: Member advice or complaint triggers an amendment

    When a member, often having received an ATO assessment or having failed to receive an ATO payment, comes forward to explain why your reporting to us was incorrect your processes should routinely and objectively:

    • verify the claim
    • adjust accounts or registry systems, sometimes with income tax consequences (I’ll say more on this soon)
    • lodge an amended MCS within 30 days of having all the information needed to verify the claim.

    These actions each need to be linked so that one can't happen without the other. They obviously don't necessarily need to be fully automated but clearly automation will help.

    End of example

    Commonly encountered errors occurring in these situations

    Not sufficiently automating the amendment trigger, or not clearly mandating a manual trigger in the procedures followed by your staff

    Whether an MCS amendment occurs should not be hit or miss. For example, the reliability of your procedures should not vary according to which areas of your organisation become involved and where, how and by whom the need for an amendment is identified and progressed.

    While mistakes can’t be completely avoided, I hear (perhaps too often) about inconsistent treatments and different levels of understanding across large organisations being a reason for failure to correct an MCS as a result of changes elsewhere. I have got to mention here that the ATO knows all about these sort of large organisational challenges too – and indeed we are not blameless either.

    Not allowing an amendment to proceed only because a member account is closed

    The ATO hears regular complaints from members that their fund refuses to correct agreed errors in an MCS once they have rolled out or once a period of time has passed. Your frontline client service staff may direct these members back to the ATO but our frontline staff can only direct such claims back to you again, leaving members to face complaint processes at both our end and yours. The obligation to amend an MCS is not limited in this way. If everyone agrees that the original MCS was factually incorrect, for whatever reason (including reasons beyond the fund’s control), then the message is: you must amend.

    When amending the MCS for a closed account, is the responsibility for reporting the amendment with the fund that holds the closed account or the new fund holding the current account – particularly in the case where tax needs to be deducted?

    The responsibility to amend an MCS lies with the fund that lodged the original MCS. Practically speaking, it is not possible for a supplier to lodge an MCS for another provider without that provider’s authorisation in the form of the Supplier lodgment declaration.

    But what if it’s impossible to rectify errors in the taxation of the contribution?

    I want to mention here one argument often raised with me for not amending an MCS once contributions have been rolled out – it seems quite valid at first glance. A contribution might have been classified as a personal contribution when it was made and when it was reported in an MCS. But much later, after the member has rolled out that contribution along with their other benefits, it is proven by the member and their employer that it was in fact an employer contribution. The opportunity to deduct 15% contributions tax from the contribution was missed and so the fund income tax implications of the change are difficult if not impossible to ever fully resolve.

    But this does not prevent you ensuring MCS reporting is factually correct. If you now accept the contribution was an employer contribution, you must amend the MCS within 30 days no matter what you decide to do about rectification of income tax issues (and no matter how long it takes you to resolve them). I won’t pretend these are not difficult issues to deal with but at least the MCS part is straightforward when you have a former member urgently needing attention.

    You are welcome to email SuperCRT@ato.gov.au for guidance in specific cases on the more complex aspects of these situations.

    How do we do an amendment if the account is closed and sent to another rollover fund, which requires us to claw back money?

    These are issues you do need to consider as they arise and may take some time to resolve. I have seen a number of different solutions proposed in different situations including:

    • having the member contribute or roll back the difference
    • taking responsibility for payment without any prospect of recouping it from the member (where fund error is involved), and
    • by not making assessable income adjustments and thus not paying the tax that is in theory due – recognising a contribution as a personal contribution for one purpose (fund income tax) and as an employer contribution for another (MCS).

    Whichever of these solutions is appropriate, the principle remains that an MCS amendment within 30 days to correct the description of a contribution from ‘personal’ to ‘employer’ (for example) is always both practically straightforward and a legal requirement that can’t be avoided.

    How does the ATO expect the fund to cover differences in contributions tax when the fund no longer holds any balance?

    As stated in the answer to the question above, it is often difficult, if not impossible to make these changes. The money to be taxed has left the fund; so the fund pays the tax it is liable to, even if it cannot recover that amount from a member.

    Example: Refusal to amend MCS despite admission of error

    In April 2014, Debra received from the ATO advice of excess concessional contributions in the 2012–13 financial year. She realised the contributions information it was based on was incorrect and contacted her fund, as the ATO letter suggested. The fund’s client service staff recognised and apologised for the error but said that because she had rolled out and her account was closed no changes could be made. They referred her back to the ATO.

    The ATO advised her that if the fund accepted the error they should amend and unless they did the ATO would assume that the information in the original MCS was correct. They told her about her right to take the matter to the Super Complaints Tribunal. The member lodged a complaint with the SCT and lodged an objection with the ATO that was disallowed.

    After the third contact with the ATO we escalated the matter as a fund compliance case. We contacted the fund to advise of its obligation to correct all material errors even after an account is closed. The administrator said they were already aware of this obligation and described the matter as a one-off error by client service staff. An amended MCS was lodged more than five months after Debra first brought the error to the fund's attention.

    End of example

    This sort of experience is costly for you and for us and, most importantly, leads to such a bad experience for the member.

    We also had the issue being discussed with the Debra example. How would you take the tax from the members account if it’s closed?

    The Debra example is intended to illustrate that there should be no delay in MCS amendment despite the difficulty you refer to regarding recovery of tax not paid by the member. Perhaps you found there was no way to recover the tax, but at least the MCS outcome was corrected.

    How can the amendment process be automated when the definition of material is on a case-by-case scenario?

    It does pose challenges for automation but does not prevent it. For example, a rule that says that altered employer contributions of less than $50 can be ignored may be simple to automate, but automatically detecting where you needed to amend or not in the first instance is not. There will always be manual issues a fund must deal with.

    Is there the ability for funds to request original MCS details from the ATO where that information is not readily available?

    Yes, requests of this nature may be required in rare situations, such as loss of data and successor fund transfer difficulties.

    Send them to CRT@ato.gov.au explaining all the circumstances.

    Note however that these requests should never be routine. There are a number of obligations in tax law, super fund regulation and duties to members that require you to keep an accurate record of all transactions. This is particularly so when the information recorded is critical to future anticipated obligations, such as the need to amend an MCS.

    If the ATO cannot match an MCS amendment to an original MCS, why are these not rejected as it is clear that this will duplicate any contributions reported?

    Unfortunately there is no clear way to distinguish the original from the amendment. Sometimes a second MCS is a deliberate new original rather than an amendment and we cannot reliably distinguish between the two. Most of the time the original/amendment field is used – but not always. Because ATO systems have never been built to refer to the original/amendment field, the industry has understandably not established consistent use. The field was introduced for 2007–08 as a possible direction for future design and was never properly implemented by all of the industry or by the ATO.

    Now we are only a few years out from a major change when the MCS goes into the Data Standard as part of the Fund member report. In this environment we are reluctant to make costly internal process improvements like this or to cause the industry to make costly changes either. Our plan is to maintain the status quo in the meantime while fully recognising the implication that the current process is not ideal.

    When does the ATO process the amended MCS once received from a super fund?

    As with all MCS, processing is continuous and takes about 48 hours. Note however that downstream consequences of amendment, such as amended excessive contributions tax (ECT) assessments and co-contributions, involve secondary processes that may be run in regular batches and may take longer to occur.

    How many years back can an amendment go – two years, five years or ten years?

    As discussed, materiality determines how far back you need to amend. The longer ago an error occurred, the less likely it is to be material. For example, a very significant error that has affected a member’s super surcharge liability may need to be corrected back as far the commencement of the MCS in 1997. That depends on why you need to amend; however, MCS were not required until 1997 so reporting before this date is not required.

    For MCS purposes, is an account holder a member if they haven't yet made a contribution?

    Yes. Strictly speaking it is not whether a person is a member that matters for MCS lodgment, but whether that person held a superannuation interest in the fund at any time during the financial year.

    See also:

    Does an amendment need to be sent when a member submits the proc. 82AAT to the fund changing the components from non-concessional to concessional?

    No, in the MCS you report the nature of contributions (personal contribution versus employer contribution) not their tax status (non-concessional versus concessional). A personal contribution does not cease to be a personal contribution when the member notifies you of their intention to claim a deduction and so no amendment is required. You don’t report the receipt of section 290-170 notices on the MCS.

    See also:

    We have a lot of requests from small business and small companies changing contribution types between employer and personal and vice versa. What evidence is required to verify the claim?

    The evidence required is enough to allow you to be reasonably satisfied that a claim is correct. It can be different in different situations. For example, routine small adjustments at the payroll level creating a need for a large employer to recoup employer contributions made in error should require little more than a brief few word explanation of the circumstances. In contrast, a claim by a small employer company in which the member is a director following an assessment of excess contributions tax will require documentary evidence and careful objective consideration.

    Example

    Walter, a self-employed investor and businessman, made a super contribution to Big Super without the involvement of any other person or entity and using a personal cheque drawing on a bank account in his own name. In error, he entered this contribution on one of Big Super's forms as a contribution by an employer. He put his name down as both employer and employee and failed to indicate the nature of the contribution, despite a clear alert on the form that said, 'All contributions will be treated as super guarantee contributions unless otherwise indicated'. Big Super recorded the contribution as an employer contribution and reported it as such to the ATO in an MCS for Walter.

    Walter received an excess contributions tax assessment based on the MCS that indicated he had exceeded the concessional cap. Walter asked Big Super to amend the MCS. He provided evidence that he had made the contribution himself. Using their internal records, the fund also considered the obvious errors in the form Walter had given them and the cheque's drawer.

    Big Super agreed that the contribution had been mischaracterised by them when it was made. Despite the fact that Walter's lack of care in completing the form was the source of the error, the fund recognised its obligation to now amend the MCS involved, correcting what was now known to be a reporting error.

    End of example

    So, you would need to look carefully at all information you were given when you accepted the contribution:

    • How were you paid?
    • Who sent the contribution?
    • Has the member – to your knowledge – always been self-employed?

    You would need to collect enough of this type of information to convince yourself that a change is required.

    See also:

      Last modified: 05 Apr 2018QC 42279