For several years now, many people and professional bodies within the financial services industry have been pushing to address the inequalities in respect to excess contributions tax (ECT). So it was pleasing recently to read via Peter Burgess, National Technical Director of SPAA that the Australian Taxation Office (ATO) had recently indicated in a Superannuation Consultative Committee (SCC) meeting that they will now look to apply the ‘de-minimis’ test in deciding whether or not to raise an ECT assessment.
What is the de minimis test?
This is a Latin term, which is a shortened form of the expression “de minimis non curat lex” meaning ‘the law does not care about very small matters’. It is often considered more efficient to waive very small amounts of duties and taxes rather than collect them. For ECT purposes, it appears that the ATO is looking to apply this rule to small amounts that have created sizeable excess contributions tax liabilities.
How will the de minimis test apply?
To understand further, let’s take a look at an example:
Ben during the current financial year (2011/12) made self-employed contributions totalling $50,000 in which he wishes to claim a tax deduction. He also made $150,000 of non-concessional contributions. At the start of the following financial year (2012/13), he makes a further $450,000 non-concessional contribution. When completing Ben’s tax return, his accountant advises that the maximum self-employed tax deduction that can be claimed is $49,900. As a result, $100 is now treated as a non-concessional contribution, which triggers the bring forward rule in the 2011/12 financial year ($150,100).
In the 2012/13, Ben now has an excess non-concessional amount of $150,100, meaning an excess contributions tax liability of $69,797 ($150,100 + $450,000 – $450,000 = $150,100 x 46.5%).
Applying the de minimis test, the ATO will appear to disregard the $100 contribution that triggered the ECT liability.
What amount is a “small amount” and how could it apply?
Good question, no indication has been provided on these matters.
In terms of how it could apply, the above example is just one way how the ATO may apply the de minimis rule. Similar scenarios with small contributions made by an employer on behalf of a member may also apply (i.e. insurance policy premiums). How else do you think it could apply?
I believe the ATO has commenced reviewing individual cases and contacting those with inadvertent breaches. These ECT liabilities to be refunded will go back to the introduction of Simpler Super from 1 July 2007. Furthermore, refunded amounts will be allowed to be returned to the super fund without impacting contribution caps of these individuals
With the Labor Government committed to providing a ‘fairer’ superannuation system, this outcome appears certainly a step in the right direction…