Dealing with accidental excess contributions in SMSF

Dealing with accidental excess contributions

Before 17 November 2010 a taxpayer who had inadvertently breached the contribution caps had to wait until they received an excess contributions tax (ECT) assessment before applying to the Commissioner for exercise of his discretion pursuant to s. 292-465.
Act No. 117 of 2010132 amended s. 292-465(2) to allow a taxpayer to apply to the Commissioner for a determination as soon as all the contributions sought to be disregarded have been made. If an ECT assessment has been issued, applications for the Commissioner’s determination must be made within 60 days commencing on the day that the taxpayer receives the ECT notice or within any longer period that the Commissioner allows.

The Commissioner will only exercise his discretion where:
(a) there are special circumstances — see below for further explanation; and
(b) making the determination is consistent with the object of Div 292.

Special circumstances
Special circumstances require that the breach is inadvertent and it must not have occurred through the fault of the taxpayer.
Sections 292-465(4) and (5) specify that the Commissioner may have regard to the following matters when making a determination:
– whether the contribution made in one year would be more appropriately allocated towards another financial year;
-whether it was reasonably foreseeable, when the contribution was made, that the taxpayer would have excess concessional or non-concessional contributions for the year, and in particular:
-if the contribution for the taxpayer was made by another party — the terms of any
agreement or arrangement between the parties regarding the amount or timing of the
contribution; and
– the extent to which the taxpayer had control over the making of the contribution.
Examples where the Commissioner may exercise his discretion to disregard or reallocate
contributions:

1. An employer makes contributions in respect of year 1 on 3 July of year; the employer also makes contributions for year 2 on 29 June of the same year.
2. A taxpayer exceeds their contribution cap for the year because a superannuation guarantee shortfall amount has been paid into the fund.
3. The contribution cap is exceeded because of the exchange gain effects on a transfer of an amount from an overseas superannuation fund.