Superannuation redeposit during GFC results in tax hit

A taxpayer who withdrew and re-deposited his superannuation has been hit with excess contributions tax of $31,620 after the AAT agreed with the Commissioner that there were no “special circumstances” to disregard the excess contributions under s 292-465 of the ITAA 1997.

In January 2009, the taxpayer withdrew $366,573 from his superannuation fund and placed it in bank term deposits to avoid any further losses amid the global financial crisis. When the term deposits matured, and he thought it was safe, he re-deposited a total of $218,000 with his former superannuation fund. As the taxpayer was over age 65 (and not entitled to the $450,000 cap under the “bring forward” rule), it followed that he had exceeded his non-concessional contributions cap of $150,000 for 2009–2010.

The Commissioner issued him with an excess contributions tax assessment of $31,620 (ie 46.5% of $68,000). The taxpayer argued that the Commissioner should exercise the discretion under s 295-465 to disregard the excess contributions because the imposition of the tax was “unfair” and he had not obtained any tax advantage by re-depositing the money.

The AAT upheld the Commissioner’s decision not to exercise the discretion after ruling that the taxpayer’s situation did not constitute “special circumstances” as required by s 295-465(3). While the taxpayer had made an unfortunate error with an unintended outcome, the AAT ruled that there was nothing “unique” or “special” that sets it apart from other taxpayers who have similar breaches. The AAT accepted that there had been an “air of panic in the transactions” amid the GFC but considered that it was reasonably foreseeable that it would result in excess contributions. As the taxpayer did not seek professional advice to ascertain the consequences of re-depositing the money, the AAT said that any attribution of error or mistake was, regrettably, his alone.

The AAT agreed that the superannuation contributions had been “made gradually over the course of his life”, so that the exercise of the discretion would be consistent with the objects of the legislation under the second limb in s 292-465(3)(b). However, the AAT noted that an application cannot succeed without “special circumstances” (s 292-465(3)(a)).

Re McLennan and FCT [2013] AATA 311, www.austlii.edu.au/au/cases/cth/AATA/2013/311.html.