March 2014
New precedent objection for ECT assessments
Editor: The SIS Regulations clearly allow a
superannuation contribution received in one
month to be credited to the relevant member's
account by the 28th day of the following month.
This has given rise to 'contribution reserving'
strategies (described further below), particularly
for contributions made at year-end.
However, despite the fact such strategies
have effectively been approved by the ATO,
they will not change the tax returns to allow for
contributions made in one year to be reported as
counting for the following year.
Instead the ATO has suggested that affected
taxpayers should simply object against any
excess contributions tax (ECT) assessment
they receive.
Therefore, to assist taxpayers (and tax agents)
in this situation, we approached DBA Lawyers to
draft us up just such an objection.
Contribution reserving has become increasingly
popular in recent times, especially with the
ATO’s recent release of TD 2013/22. If handled
correctly, it can be a worthwhile strategy.
However, many who have already implemented
contribution reserving have received ‘please
explain’ letters from the ATO, or ECT
assessments. This article from DBA Lawyers
provides a practical solution to dealing with such
matters.
Background to contribution reserving
Contribution reserving broadly allows a member
to make a concessional contribution – and claim
an associated tax deduction – in one financial
year, whilst counting the contribution in the
member’s concessional contributions cap for
the following financial year.
The implementation of contribution reserving
requires upfront and detailed paperwork
(including a contribution reserving strategy and
trustee resolutions). Expert advice should be
sought if there is any doubt.
NTAA Corporate offers a Contribution Reserving
Kit that contains a detailed memo outlining the
practical ‘how to’, pros, cons and inherent risks
of contribution reserving, as well as template
resolutions for those wishing to implement such
Voice
a strategy.
ATO ‘please explain’ letters
Following the implementation of a contribution
reserving strategy, the member may receive an
ATO letter notifying them that they may have
exceeded their concessional contributions cap
for the relevant financial year.
Editor: We suspect that this is because the
ATO is unable to distinguish from a member’s
personal tax returns whether the member is
legitimately using contribution reserving or
whether the member simply has concessional
contributions that exceed their cap for a given
year.
This notification letter will provide the member
with the opportunity to explain why they have not
exceeded their concessional contribution cap
(e.g., because they were using a contributions
reserving strategy).
If the ATO does not receive a response to this
‘please explain’ letter, or are not satisfied with
the response they do receive, they may issue an
ECT assessment.
An objection can then be submitted to the ATO
in response to this assessment. Assuming the
objection is appropriately worded, the result
should be that, upon receiving the objection, the
ATO amends the assessment to nil.
Note: An objection can only be made once the
excess contributions tax assessment is received,
and not in response to the initial ‘please explain’
letter.
For your reference, a sample objection is
provided in the Members' Section of our website
under the March Edition of Voice.
A full version of the objection is now available
as part of the Contribution Reserving Kit, at no
additional cost to members.
The spectre of having to respond to an
ATO ‘please explain’ letter or assessment
emphasises the importance of ensuring that the
contribution reserving paperwork is adequate
from the outset.
Ref: DBA Lawyers. This article is for general
information only and should not be relied upon
without first seeking advice from an appropriately
qualified professional.
Page 1
Voice
Contribution reserving — sample objection
Disclaimer
The NTAA provides the following sample objection as a general guide to the type of wording
that should be included in an objection to an excess contributions tax assessment arising from
contribution reserving.
It is designed for objections that are lodged within the allowed time limits and acts as a guide to
enable tax practitioners to help their clients lodge an objection to the ATO.
The sample objection will need to be tailored to each client’s circumstances as not every item will
necessarily be relevant to your client nor does the sample objection purport to identify your client’s
factual scenario, possible issues, or grounds that could arise in relation to the denial of their claim.
Importantly, tax practitioners should be aware that as a general rule, taxpayers’ review rights are
limited to the grounds stated in their objection (e.g., in a Federal Court or Administrative Appeals
Tribunal hearing). Particular care should therefore be taken to ensure the facts and grounds
stated in each objection are framed to cover the client’s specific situation to protect their legal
rights should the objection be disallowed and your client wishes to pursue their review rights
further.
Furthermore, any statement or claim asserted in an objection must be true and correct. The
reason for this requirement is that where any statement or claim asserted is found to be false
and misleading, administrative and criminal penalties could result for the client, and potentially
the tax practitioner. It is important to ensure that all details are received from your client and any
assistance provided is strictly in accordance with the client's instructions. Under no circumstances
should a tax practitioner make statements about the affairs of a client unless they are known to
be true or are based on sound argument and logical reasoning. For that reason, it is prudent
to ensure that all instructions from a client are in writing and any statements made by a tax
practitioner are confined accordingly.
The sample objection has been designed such that the client signs and lodges the objection and
not the Tax Agent on behalf of the client. This approach has been taken in light of the decision
of the Supreme Court in Saxby v R [2011] TASCCA 1, where the Commissioner successfully
prosecuted a taxpayer for making a false statement in objection notices lodged with the Tax Office.
This in turn resulted in a criminal conviction and imprisonment of the taxpayer.
Accordingly, to protect tax practitioners, especially, where the tax practitioner may have been
involved in the preparation and lodgement of the income tax return for the client, which is the
subject of the objection notice, it is prudent that the client signs and lodges the objection and not
the Tax Agent on behalf of the client.
For those tax practitioners still wanting to sign and lodge the objection notice as Tax Agent on
behalf of the client, we strongly suggest specialist legal advice be sought as the template objection
notices do not cater for this.
Process
To make an objection, the following form should be completed and lodged:
‘Objection form — for taxpayers’ (NAT 13471) (available from: http://www.ato.gov.au/Forms/
Objection-form---for-taxpayers/)
Completion of the majority of the form should be relatively self-explanatory. Question 11, however,
requires an understanding of the relevant legislative provisions and background to contribution
reserving.
NTAA Corporate offers a Contribution Reserving Kit that includes template wording that can be
used to complete question 11. Below, we provide a sample, reduced version of this wording.
Page 2
March 2014
March 2014
Division 293 tax
The use of a contribution reserving strategy may also give rise to a division 293 tax assessment for
high income earners. Depending on the specifics of the case, such an assessment may be objected
to on a similar basis as an objection to an excess contributions tax assessment.
The following sample objection does not cater for an objection to a division 293 tax assessment.
Instead, expert advice should be sought.
RESPONSE TO QUESTION 11 OF ATO FORM
<insert date>
ATO ref:<insert reference>
Australian Taxation Office
PO Box 3100
PENRITH NSW 2740
Fax: 1300 669 846
Dear Sir/Madam
Re: Notice of Objection to excess contributions tax (‘ECT’) assessment — additional information
to accompany NAT 13471
Taxpayer: <name of member>
Tax File Number: <x>
This letter details the response to Question 11 of Section D of the attached completed ‘Objection
form — for taxpayers’ (NAT 13471).
RESPONSE TO QUESTION 11: What are your reasons for the objection?
1SUMMARY
The ATO has incorrectly treated me as having excess concessional contributions in the <x> financial
year (‘First Financial Year’). The discrepancy arises from the fact that an ‘unallocated contributions
account’ has been utilised as envisaged by the ATO in ATO ID 2012/16 and TD 2013/22 however
the income tax return and self managed superannuation fund return do not capture this subtlety.
Accordingly, the entire amount of excess concessional contributions tax is excessive and should be
remitted or reduced to nil along with interest.
2
BACKGROUND FACTS
The background facts relevant to this objection are as follows:
•
I was born on <date of birth>.
Voice
Page 3
Voice
•
At all relevant times, I have been a member of <name of super fund> (‘Fund’).
•
At all relevant times, I passed the work test and was eligible to contribute to a regulated
superannuation fund.
•
The Fund was at all relevant times a regulated and complying superannuation fund.
•
The trustee of the Fund maintains a contribution reserve account for the Fund that can be
used at any time that a contribution is received before it is actually allocated to a particular
member’s account.
•
During the First Financial Year, total concessional contributions of <$x> were made in respect
of me. Only <$x> of this amount was allocated to me during the First Financial Year.
•
In the following financial year (‘Second Financial Year’), the trustee of the Fund resolved to
make the following allocations in respect of me:
Contribution
reference
Allocation date
Contribution
(CC or NCC)
Amount
•
The ATO has issued an excess contributions tax notice of assessment in respect of the First
Financial Year. I hereby object to the associated alleged liability.
•
The trustee of the Fund was allowed to maintain an ‘unallocated contributions account’
pursuant to the Fund’s governing rules and s 115(1) of the Superannuation Industry
(Supervision) Act 1993 (Cth), which provides as follows:
A trustee of a superannuation entity may maintain reserves of the entity.
•
All allocations from the ‘unallocated contributions account’ were made pursuant to
reg 7.08(2) of div 7.2 of the Superannuation Industry (Supervision) Regulations 1994
(Cth), which provides as follows:
If a trustee receives a contribution in a month … the trustee must allocate the
contribution to a member of the fund:
3
(a)
within 28 days after the end of the month; or
(b)
if it is not reasonably practicable to allocate the contribution to the member of
the fund within 28 days after the end of the month — within such longer period
as is reasonable in the circumstances.
TAXPAYER ARGUMENTS
The key facts are substantially identical to those in ATO Interpretative Decision ATO ID 2012/16
and consistent with the example provided in Taxation Determination TD 2013/22.
In both ATO ID 2012/16 and TD 2013/22, the ATO conclude that where a contribution is made
to a regulated superannuation fund in respect of a member and is subsequently allocated to the
member under div 7.2 of the Superannuation Industry (Supervision) Regulations 1994 (Cth), it is
only counted as a concessional contribution at the time of allocation. This is consistent with case
law. The ATO ID cited Carden’s case (ie, Executor Trustee and Agency Company of South Australia
Ltd v Federal Commissioner of Taxation (1932) 48 CLR 26) as authority in reaching this conclusion.
Page 4
March 2014
March 2014
For completeness, ATO ID 2012/16 refers to div 292 of the Income Tax Assessment Act 1997 (Cth)
(which applied to concessional contributions prior to 1 July 2013), whereas TD 2013/22 refers to
div 291 of the Income Tax Assessment Act 1997 (Cth) (which applies to concessional contributions
from 1 July 2013). This difference is immaterial for the purposes of this objection.
I submit that the ATO’s reasoning in ATO ID 2012/16 and TD 2013/22 is entirely correct and endorse
it completely.
Accordingly, I submit that the reasoning that the ATO set out in ATO ID 2012/16 and TD 2013/22
should be applied here. Further, I note that TD 2013/22 is a public ruling and the Commissioner
must apply the law as set out in TD 2013/22 for contributions made on or after 1 July 2013.
4CONCLUSION
My total concessional contributions for the First Financial Year amount to <$x>. The amount of
<$x> was held in a contributions reserve until after that 30 June to be allocated in the subsequent
financial year. Thus, my concessional contributions are within my cap for the First Financial Year.
Accordingly, the entire amount of excess concessional contributions tax in respect of the First
Financial Year is excessive and should be remitted or reduced to nil along with any interest or
penalties.
Voice
Page 5