Contributions case involving ‘COVID victim’ provides important lesson
A recent AAT decision highlights the importance of ensuring clients follow the rules regarding eligibility for claiming personal superannuation contributions.
The case Khanna and Commissioner of Taxation , decided by the Administrative Appeals Tribunal, involved personal superannuation contributions made to a superannuation fund during the 2018-19 income year.
DBA Lawyers special counsel Bryce Figot said the decision serves as a timely reminder regarding the rules around personal deductible superannuation contributions.
The taxpayer, in this case, Mohan Lal Khanna, had lodged his personal income tax return shortly after the end of the 2018-19 income year and did not claim a deduction for the contributions.
It was accepted that the taxpayer was a “COVID victim”. On 22 June 2020, he received a notice of redundancy from his employer.
Only then did the taxpayer attempt to claim an income tax deduction for personal superannuation contributions in the 2018-19 income year on 3 July 2019, explained Mr Figot.
“Presumably this was in order to then be able to lodge an amended income tax return and claim a refund,” he said.
“However, his fund said that it was not able to process the notice. This was on the basis of s 290-170(1) of the Income Tax Assessment Act 1997 (Cth).”
Mr Figot explained that section 290-170(1) requires that, in order to claim a deduction for a personal superannuation contribution, a taxpayer must give to their super fund a notice of intent to deduct the contribution and the notice “must” be given before the earlier of when they lodge a personal income tax return and the end of the next income year.
“The taxpayer argued that he should have been granted an extension to lodge his notice due to the ATO and MyGov websites advertising support for taxpayers who are affected by disaster events such as the COVID-19 pandemic,” said Mr Figot.
However, the AAT found that the word “must” indicates an obligation to comply with the notice requirements, including the statutory time limit for giving the notice. There is no discretion to extend the time or to disregard non-compliance with that time frame.
Accordingly, Mr Figot said the AAT held that the taxpayer was not able to claim a tax deduction for personal superannuation contributions because he did not submit his notice on or before 3 July 2019.
Mr Figot said this decision illustrates that the rules for deducting personal superannuation contributions are strict.
This recent decision, he said, is similar to the outcome of Johnston and Commissioner of Taxation  AATA 20.
“In that case, the taxpayer had not provided any notice to the fund, but nevertheless (via his tax agent) claimed a deduction for personal superannuation contributions,” he said.
“The ATO then queried the taxpayer’s deduction claims. Only then did the taxpayer provide the notice to his super fund. But by then it was too late, because the time limit set by s 290-170(1). Much like the taxpayer in Khanna, the taxpayer in Johnston was not entitled to claim a deduction. However, because the taxpayer in Johnston actually had lodged a return incorrectly claiming a deduction, the Johnston decision focused on how much penalty if any to apply.”
Mr Figot said if taxpayers don’t follow the rules regarding eligibility for claiming personal superannuation contributions, particularly the time limits, the taxpayer can be ineligible to claim a deduction.
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.