Staggering mistakes

It seems that thousands of superannuation millionaires could be licking their wounds after overshooting the transitional $1 million cap that applied to non-concessional super contributions made between May 12, 2006 and June 30, 2007 in the lead-up to the arrival of the new super system.

Daily superannuation newsletter Superannuation Practice Update, published by Thomson Reuters, reported last night that a breathtaking 7,588 individuals "potentially" exceeded the $1 million cap. (Non-concessional contributions were previously known as undeducted or after-tax personal contributions.)

The tax office had released the number of these potential breaches in a meeting last month with a group of tax practitioners. (You can read the minutes of the meeting on the ATO website)

The number of taxpayers who may have overshot the contribution cap reinforces, in my opinion, the desirability to gain quality professional advice when undertaking anything complicated or highly significant involving personal finances.

In many of the cases identified as possible breaches of the transitional cap on non-concessional contributions, the members probably sold valuable real estate to raise the money for such sizeable contributions. These transactions would often have had capital gains tax (CGT) implications.
Excess non-concessional contributions will be taxed at 46.5% unless the tax commissioner exercises his discretion to disregard them or to attribute the excess to another financial year if he accepts that special circumstances were involved. (For an outline of the tax consequences of excess benefits, see: ATO: Excess contributions tax)

The tax office says the number of potential breaches of the $1 million limit may be reduced once tax officers have examined more of the details of the cases including whether possible mistakes were made in reporting by the individuals or their funds. And the commissioner may, of course, exercise his discretion in favour of some of these members.

It is unknown whether most of the potential breaches involved exceeding the contributions cap by a few dollars or by much larger sums.

I have heard unconfirmed stories of some members exceeding the cap by as much as $1 million, apparently through ignorance. This is staggering.