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Federal Court overturns AAT excess contributions decision

A Federal Court ATO test case has overturned an Administrative Appeals Tribunal (AAT) decision that there were 'special circumstances' that allowed an excess contribution to a super fund to be disregarded.

The case involved husband and wife taxpayers, Mr and Mrs Dowling, who were primarily concerned with Mr Dowling qualifying for the age pension when he turned 65 years of age.

To be eligible for the pension, Mr Dowling withdrew $293,895 from his super fund, tax-free (as he was then over 60 years of age) and contributed it into Mrs Dowling's superannuation fund in the 2009 income year.

In the 2011 income year, Mrs Dowling read in the media that superannuation benefits either may not be taxed at all, or could be minimally taxed, when paid to the beneficiaries of her estate upon her death.

To secure this favourable tax treatment, Mrs Dowling withdrew $240,933 from her superannuation account on 30 August 2010, and re-contributed $200,000 of it as a personal non-concessional contribution.

Mrs Dowling did not seek professional advice from a tax lawyer or an accountant, and had inadvertently  made an excess contribution to her superannuation fund (Editor:  As most taxpayers are currently only allowed to contribute $450,000 in a three year period).

The Federal Court found that there were no 'special circumstances' and that the taxpayer was liable for excess contributions tax of more than $20,000.

Editor:  Unfortunately, as the Court took pains to point out, inadvertently falling foul of the law doesn't form 'special circumstances'.  Ignorance of the law "may be bliss", but it can also be costly.

If you'd like to discuss your superannuation situation and how you can maximise your retirement position, please contact our office.