The Australian Taxation Office has warned operators of DIY-super funds against making up excuses for breaching annual limits on contributions, or risk facing serious penalties.
But an industry expert has said often these operators are unaware of the laws surrounding personal contribution and the extra taxes involved, and that more reform and education should be undertaken.
Assistant tax commissioner Stuart Forsyth told an Institute of Chartered Accountants conference there have been a large number of restating contributions since last May, when personal contribution caps were changed.
The new rules stated that for people under the age of 50, the new concessional contribution cap was $25,000. People aged over 50 could put in up to $50,000 per year until June 30, 2012, and up to $25,000 for every year after that date.
Forsythe warned DIY users not to make up excuses with regard to previous contributions, saying they would see harsh penalties as a result.
“While all cases will be considered individually, we place significant weight on information reported to use before the taxpayer was aware of the consequences of this reporting,” he said. “It is also significant that the member, who was also a trustee of the fund, did not identify for a significant period of time the information was incorrect.”
Contributions above the cap can incur tax as high as 93%, with Forsyth saying the ATO has identified 35,000 cases where penalty tax is involved.
Multiport technical director Philip La Greca said operators can often make up excuses for avoiding penalty tax incurred by breaching these penalty taxes.
“There are a number of people who get caught up in the tax who don’t have a clear understanding the cap wasn’t necessarily over a financial year. Someone might have put in some money before June 30, and than one million the next year, and still breach the cap and find themselves with a tax bill.”
La Greca said in these situations, often operators will try and make up an excuse to the ATO, such as saying the contribution was for another operator within the fund.
“But what the ATO is saying here is that this issue should have been sorted out originally, and that there is no use making up an excuse about it.”
But he also says there are circumstances where operators are genuinely unaware of contribution limits, and there is no refund mechanism to help them withdraw funds that may have accidentally been deposited.
“In DIYs there are no mechanisms which say “I’ve put in too much, can you help me” that is really easy to operate. If you put in too much, you have to operate that mechanism within 28 days and if you don’t know that, you’re trapped and penalised with a 46.5% tax rate.”
“So if they can’t take that money out, they are going to make up an excuse about that. But people need to take more responsibility for monitoring their funds and knowing the rules. And so there needs to be something done about that.”
But Forsyth said the ATO will continue in its crackdown on DIY funds, and will harshly punish any excuse given – even if its members are not attempting to avoid tax bills.
“There are serious penalties for making false and misleading statements,” he said. “For a statement to be false and misleading it doesn’t have to be made with any intent to avoid tax – it is sufficient that it’s false or it’s misleading.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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