Government urged to rectify ‘anomaly’ impacting unused contributions

The submission said this appears to be an unintended legislative consequence.

The SMSF Association noted that there is currently no distinction in the reporting of superannuation guarantee amounts received by a superannuation fund that relate to a previous financial year or the current year’s concessional contributions.

The submission noted that there is a well established process in place to address circumstances where excess concessional contributions arise.

This is set out in Income Tax Assessment Act 1997 section 291-465, PS LA 2008/1 The Commissioner's discretion to disregard or allocate to another period superannuation contributions for excess contributions purposes, and form NAT 71333 Application – Excess Contributions Determination, the submission stated.

“These concessions enable an affected taxpayer to apply for Commissioner discretion where an excess contribution occurs due to the receipt of superannuation guarantee amounts that relate to a previous financial year. It allows the contributions that relate to an earlier period to instead be applied to that earlier period for contribution cap purposes,” the association explained.

Prior to 1 July 2018 when the concessional contributions caps operated on a ‘use it or lose it’ basis, the process provided for in PS LA 2008/1 were relevant and practical, the submission said.

“Indeed, it remains current for the sole purpose of remediating excess contributions assessments,” the association noted.

“However, since its introduction, we have seen new measures allowing individuals with a TSB of less than $500,000 to utilise unused concessional contribution cap amounts for up to five years, but no earlier than the 2018/19 financial year.”

The unused concessional contributions cap amounts, it said, have the effect of increasing an individual’s concessional contribution cap.

“What has become evident is that upon receipt of superannuation guarantee amounts that relate to a prior year, an individual’s expanded concessional contribution cap under the carry forward unused concessional contributions cap will be diminished or extinguished,” the submission stated.

“This issue is magnified for those who have been beneficiaries of the superannuation guarantee charge amnesty.”

The SMSF Association pointed out that there is currently no mechanism in place to allow for an adjustment to an individual’s carry forward unused concessional contributions, where they are reduced or extinguished due to the receipt of superannuation guarantee amounts that relate to an earlier year.

“Furthermore, the current provisions to formally apply for Commissioner discretion fail in this scenario. To apply to have the superannuation guarantee amounts applied to an earlier year, you must first have an excess concessional contribution,” it stated.

When the process for excess contributions was first introduced, the concept of unused concessional contributions did not exist, the submission said.

“Similarly, when the SGC amnesty was first proposed in early 2018, the unused concessional contributions were not yet available. As a result, there are some unintended consequences.”

The SMSF Association said it recommends that the government update the legislation to allow a taxpayer to make an application to the Commissioner in the approved form to request that any SG amounts relating to a prior year are applied to the original year of income.

The application should allow for up to five of the previous financial years, in line with the unused concessional contributions measures.

The Commissioner of Taxation should be provided with the power to receive and make such assessments or determinations, it said.

“While it is individuals who were compensated during the amnesty period that are of most concern here, this issue could arise at any time where historical cases of unpaid or underpaid superannuation are identified.”

“These changes are not expected to have any material fiscal impact on budget expenditure as it is a rectification of an anomaly in the operation of the relevant law.”