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Subject: concessional contributions cap
Question
Can the Commissioner of Taxation (the Commissioner) increase the current concessional contributions limit from $25,000 to $50,000, to allow you to make additional concessional contributions for the 2013-2017 income years?
Advice
No.
This advice applies for the following period:
2013-17 income years
The arrangement commences on:
1 July 2012
Relevant facts and circumstances
Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice.
You are under 50 years old.
You split your superannuation interest in the relevant fund with another person.
The relevant fund has confirmed the transfer of the specified amount from your superannuation interest to another superannuation fund for the other person.
You are currently a member of another superannuation fund.
Reasons for decision
Summary
Concessional contributions are subject to annual caps. If the concessional contributions exceed the caps for the year, you will be liable to pay excess contributions tax.
The Commissioner has no discretion to increase the prescribed concessional contributions cap amounts applicable to you.
Detailed reasoning
Concessional contributions
Concessional contributions are generally contributions which are included in a complying superannuation fund's assessable income and taxed at 15%. There are limits on the amount of concessional contributions that can benefit from favourable tax treatment when paid to the fund. These same limits also serve to limit the amount of concessional contributions that can be made to a fund without incurring excess concessional contributions tax.
Concessional contributions include employer contributions, such as compulsory employer contributions paid by an employer, any additional pre-tax superannuation contributions made by an employer and any salary sacrifice payments made to a superannuation fund.
Subsection 292-20(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides the concessional contributions cap applicable in various financial years. The concessional contributions cap for the 2012-13 and 2013-14 income years is $25,000.
An individual will have excess concessional contributions for a financial year if the amount of their concessional contributions exceeds the concessional contributions cap for the year. Concessional contributions in excess of the relevant cap amount for the financial year are subject to excess concessional contributions tax at the rate of 31.5%, hence removing the concessional 15% tax treatment that would otherwise apply.
It is important to note, that where a person wishes to claim a deduction for concessional contributions made to a fund, the amount of the allowable deduction is limited under section 26-55 of the ITAA 1997, such that the deduction cannot add to or create a loss in the calculation of taxable income.
The Commissioner of Taxation has no discretion under the ITAA 1997 (or any other relevant legislation that the Commissioner administers) by which to increase (or decrease) a person's prescribed concessional (and non-concessional) contributions cap for a financial year.
The Commissioner may however, make a written determination that all or part of an individual's concessional (and/or non-concessional) contributions for a financial year are to be disregarded (or reallocated) instead to another financial year for the purposes of excess contributions tax, if there are special circumstances and making the determination is consistent with the object of Division 292 of the ITAA 1997.
Commissioner's discretion to disregard or reallocate concessional contributions for a financial year
Subsection 292-465(1) of the ITAA 1997 states:
If you make an application in accordance with subsection (2), the Commissioner may make a written determination that, for the purposes of this Division:
(a) all or part of your concessional contributions for a financial year is to be disregarded, or allocated instead for the purposes of another financial year specified in the determination; and
(b) all or part of your non-concessional contributions for a financial year is to be disregarded, or allocated instead for the purposes of another financial year specified in the determination.
Subsection 292-465(2) of the ITAA 1997 states:
You may apply to the Commissioner in the approved form for a determination under subsection (1). The application can only be made:
(a) after all of the contributions sought to be disregarded or reallocated have been made; and
(b) if you receive an excess contributions tax assessment for the financial year - before the end of:
(i) the period of 60 days starting on the day you receive the assessment; or
(ii) if the Commissioner allows a longer period - that longer period.
Whilst the recent legislative changes to subsection 292-465(2) of the ITAA 1997 allow the Commissioner to now make a determination to disregard (or reallocate) contributions for the purposes of the excess contributions tax without first issuing an excess contributions tax assessment, the law still clearly prescribes that the Commissioner can only make a determination after all of the contributions sought to be disregarded or reallocated, have actually been made.
As you have not made excess concessional contributions in the 2012-13 income year, the Commissioner's discretion under subsection 292-465 of the ITAA 1997 cannot be exercised at this time.
Furthermore, the Commissioner can only make such a determination if the Commissioner considers there are 'special circumstances' and making he determination would be consistent with the object of Division 292 of the ITAA 1997. The expression 'special circumstances' is not defined in the legislation, however it is clear from case law, that 'special circumstances' are circumstances which are unusual, or out of the ordinary, such that they make it unjust, unreasonable and inappropriate to impose the liability for excess contributions tax.
In addition, subsection 292-465(6) of the ITAA 1997 states that the Commissioner may have regard to whether an excess concessional contribution was reasonably foreseeable, with particular regard to any arrangement as to the amount and timing of the contribution and the extent to which the person had control over the making of the contribution.
A consideration of the facts of your case in respect of 'special circumstances' will likely take into account that the transfer of a portion of your superannuation interest occurred over five years ago. The amount transferred to the other person was relatively small and there has been a reasonable opportunity for you to make additional contributions to make up for the transfer since it occurred.
Whilst it is acknowledged that you are willing to take steps to build your superannuation account balance, the Commissioner has no legislative power to increase the concessional contributions cap for the relevant period you have requested. You are able to make concessional contributions in accordance with your financial capacity, however any excess concessional contributions you make will result in excess contributions tax consequences.
Alternatively, you are also able to make non-concessional contributions (such as personal contributions that are not claimed as a deduction) up to the corresponding non-concessional contributions cap of $150,000. You should also be aware that non-concessional contributions are subject to fund capped contribution limits. That is, in accordance with Subregulation 7.04(3) of the Superannuation Industry (Supervision) Regulations 1994, a regulated superannuation fund cannot accept non-concessional contributions in excess of three times the amount of the non-concessional contributions cap.
Proposed Budget measures
The government announced in the 2010-11 Federal Budget that individuals aged 50 and over with superannuation balances below $500,000 will continue to have a $50,000 transitional concessional contributions cap from 2012-13.
In a Media release dated 8 May 2012, the Minister for Financial Services and Superannuation announced that the start date of this measure has now been deferred from 1 July 2012 to 1 July 2014.
Conclusion
The Commissioner has no discretion under the ITAA 1997 to increase the prescribed concessional contributions cap applicable in relevant income years.
Whilst the Commissioner has a discretion in relation to excess concessional contributions tax, the discretion can only be exercised once all the excess concessional contributions have been made and only if special circumstances warrant the exercise of the discretion.
As you have not made excess concessional contributions in the relevant period, the Commissioner's discretion to disregard (or reallocate) excess concessional contributions cannot be exercised in your case.