Cracks emerge in ATO super reporting systems

Cracks are appearing in the system at the Australian Taxation Office (ATO), with tax on superannuation contributions been incorrectly calculated for some members.

The ATO is currently sending out letters to super fund members who have potentially exceeded one or both of the superannuation co-contribution caps. But the letters being sent by the tax office are causing significant confusion and concern, according to self-managed superannuation (SMSF) consultants Heffron, as some of the information being relayed to consumers is incorrect. This is leading to some members believing they have exceeded the contribution caps when in fact they have not.

Melinda Howes from the Association of Superannuation Funds of Australia (ASFA) also believes that some letters being issued to super fund members regarding breaches of the contribution caps have been sent incorrectly. Howes said in some cases the ATO has not identified people with exemptions for the caps, and has included them in the mail out.

Heffron believes the notifications coming from the tax office are highlighting “weaknesses in the reporting/data analysis by both industry and the ATO”.

An update on contribution caps provided by the ATO last month said current data had indicated that around 24,000 people had exceeded a contribution cap in the 2007-08 financial year. Mistakes around the calculation of the contribution caps can be extremely costly. Where a super fund member exceeds both contribution caps, amounts in excess of the caps will be taxed at over 90 per cent.

According to Heffron, ATO staff are now working on correcting their systems. But in the short term, “many errors will require a discussion between the ATO and the individual member or their tax agent”.

The consulting group said it had seen instances where “two members each made $450,000 non-concessional contributions, but the ATO treated them as belonging to only one member”.

The consulting group said that even where contributions are reported electronically using special superannuation software, “it would appear that there is potential for the ATO’s systems to misread this information”.

Furthermore, Heffron said there is reason to believe that the ATO’s systems don’t distinguish between those who exceed the $1 million transitional limit on termination payments and those who don’t. Taxpayers who exceed the $1 million transitional limit on termination payments have part of their directed termination payment counted towards their concessional contributions cap.

It also appears that there are errors being made at the reporting level. Heffron said that some accountants and administrators are reporting contributions for which members claim a personal tax deduction as employer contributions, but they should always be reported as personal contributions, even where a member runs a business in their own name. This prevents the contributions being counted against the concessional contributions cap twice, Heffron said.

Regarding allocations from reserves, Heffron said not all allocations will count towards a super fund member’s concessional or non-concessional contributions cap. Heffron said some superannuation funds are incorrectly reporting members’ information to the ATO, in some cases reporting the entire amount of any reserve allocation as an 'assessable amount', rather than having some parts assessable and others non-assessable. The ATO then assumes that the entire amount should be counted towards the relevant contributions cap, Heffron said.