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Edited version of administratively binding advice
Authorisation Number: 1011639742994
This edited version of your advice will be published in the public Register of private binding rulings after 28 days from the issue date of the advice. The attached Tax Office advice fact sheet has more information.
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Subject: Excess contributions tax
Question
Based on the facts provided, do special circumstances exist and would it be consistent with the object of Division 292 of the Income Tax Assessment Act 1997 (ITAA 1997) to disregard or reallocate an amount of your concessional contributions for the 2007-08 financial year for the purposes of excess contributions tax (ECT)?
Advice
Based on the facts provided, special circumstances do exist and it would be consistent with the object of Division 292 of the ITAA 1997 to disregard or reallocate an amount of your concessional contributions for the 2007-08 financial year for the purposes of the ECT.
This ruling applies for the following period:
1 July 2007 to 30 June 2008
Relevant facts and circumstances
You were an employee of a company for a number of years.
Under the terms of your employment contract, you entered into an effective salary sacrifice arrangement (SSA) with your employer
Under the terms of your SSA, you elected to salary sacrifice regular amounts into your superannuation fund
We received your request for advice regarding ECT. In your application you provided the following information:
· letter to the liquidator regarding your claim against your previous employer
· formal proof of debt or claim (general form)
· letter to you from the liquidator
· notice of rejection of formal proof of debt or claim
· transfer of payment to your superannuation account letter received from the ATO
The ATO requested further information
We received further information from you which included the following:
· emails between you and your previous employer
· a salary analysis for the relevant period, detailing amounts owed to you for wages and superannuation
Relevant legislative provisions
Income Tax Assessment Act 1997 Division 292.
Income Tax Assessment Act 1997 Section 292-465
Reasons for decision
Summary
Based on the facts provided, special circumstances exist and it would be consistent with the object of Division 292 of the ITAA 1997 to disregard an amount of your concessional contributions for the purposes of ECT.
It is considered that special circumstances exist and it would be consistent with the object of Division 292 of the ITAA 1997 to reallocate an amount of concessional contributions made on your behalf during the 2007-08 financial year to the 2006-07 financial year for the purposes of ECT.
Detailed reasoning
The law allows a person to apply to the Commissioner to make a written determination that all or part of an individual's concessional or non-concessional contributions for a financial year are to be disregarded or allocated to another financial year, in making an assessment of the ECT.
However, under current legislation the application can only be made after the person has received an ECT assessment for the financial year. The application must be made in the approved form within 60 days of receiving the assessment, or such longer period as the Commissioner allows.
Although the Commissioner is unable to consider making the determination prior to an assessment issuing, we are providing administratively binding advice in response to your request. You will need to request the Commissioner to consider making a determination after you have received an ECT assessment for the 2007-08 financial year.
Superannuation contributions made for or by an individual are subject to annual contributions caps. The cap amount depends on whether the contributions are concessional or non-concessional contributions.
Concessional contributions include but are not limited to:
· contributions your employer makes for you, including contributions made under a salary sacrifice arrangement, and
· where you are eligible, personal contributions claimed as a tax deduction.
The concessional contributions cap for 2007-08 financial year is $100,000 for individuals aged 50 or over.
Section 292-465 of the ITAA 1997 gives the Commissioner the discretion to disregard or allocate to another financial year all or part of your concessional contributions for the purposes of ECT.
The Commissioner may make such a determination if he considers that there are special circumstances and that making the determination is consistent with the object of Division 292 of the ITAA 1997.
The object of Division 292 of the ITAA 1997 is to ensure that the amount of concessionally taxed superannuation benefits that a person receives, results from contributions that have been made gradually over a persons lifetime.
The courts have considered what 'special circumstances' means in many different contexts. It is clear from case law that special circumstances are circumstances which are unusual or out of the ordinary. Whether circumstances are special will vary from case to case, however in this context they must make it unjust, unreasonable or inappropriate to impose the liability for ECT.
The legislative intent of ECT is to tax contributions, made on your behalf, which exceed the relevant contributions cap in a financial year. It is only if there are special circumstances that the Commissioner can exercise the discretion to disregard or reallocate the excess amount of your concessional/non-concessional contributions which would subsequently change your ECT liability.
When making a decision to issue a determination, the Commissioner may have regard to whether
· a contribution you made in the 2007-08 financial year would be more appropriately allocated to another year; and
· it was reasonably foreseeable when a relevant contribution was made, that you would have excess concessional contribution for the relevant year.
· any other relevant matters.
Law Administration Practice Statement PS LA 2008/1 - The Commissioner's discretion to disregard or reallocate concessional and non-concessional contributions for the financial year (PSLA 2008/1) provides guidance on the exercise of the Commissioner's discretion.
You entered into a SSA with your previous employer at the commencement of your employment. Under the terms of the agreement you requested that certain amounts be salary sacrificed from each pay to your superannuation. You gave account details to your previous employer so that they could deposit your salary sacrificed amounts on a fortnightly or monthly basis. However this did not occur and the payments remained outstanding until you received verification of your claim against your previous employer from the appointed liquidators for the 2007-08 income year. Subsequently this amount was contributed to your superannuation fund in the 2007-08 financial year.
On the facts provided:
· the contribution amount into your superannuation fund for the 2007-08 financial year relates to the earlier financial years
· the amounts that relate to the earlier financial years were prior to the introduction of the ECT legislation
· it was not foreseeable when you entered into the SSA that you would not be paid these amounts until the 2007-08 financial year
· the timing of these contributions is a direct result of your employer's failure to contribute your salary sacrifice, wages and superannuation guarantee contributions in a timely manner
· superannuation guarantee contributions were transferred to your superannuation account by the ATO in the 2007-08 financial year
· you could not foresee that these contributions would not be paid into your superannuation fund until recovered by the liquidators of your previous employer in the 2007-08 financial year.
Conclusion
The facts outlined support the argument that special circumstances exist and that an ECT liability would be regarded as unjust, unreasonable or inappropriate because it has arisen as a consequence of the payment of outstanding wages, salary sacrifice amounts that relate to prior years.
Consequently, the Commissioner has determined that under section 292-465 of the ITAA 1997 an amount of your contribution for the 2007-08 financial year relates to the earlier financial years, prior to the introduction of ECT, and an amount relates to the 2006-07 financial year. In addition, reallocating the amount of your concessional contributions to the 2006-07 financial year would be consistent with the object of Division 292 of the ITAA 1997.
Should you receive an assessment for ECT for the 2007-08 financial year, you will need to apply for the Commissioner to make a determination and include a copy of this letter with your application.
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