Unused Super Caps Must Be Applied, AAT Rules in Taxpayer Dispute

The Administrative Appeals Tribunal (AAT) has ruled that taxpayers are obligated to utilize their unused concessional contribution caps when calculating their taxable income. This decision clarifies a key aspect of superannuation law and underscores the mandatory nature of applying carried-forward unused caps.

The ruling stems from a case where a self-represented taxpayer challenged an objection decision by the Australian Taxation Office (ATO), arguing that the ATO’s guidance on unused contribution caps implied a discretionary approach. The taxpayer asserted that he could choose when to apply unused caps from previous years, attempting to minimize his Division 293 tax liability.

However, the AAT sided with the ATO, ruling that the application of carried-forward unused concessional contribution caps is mandatory, not optional. Senior Member Robert Olding, who presided over the case, based his decision on a strict interpretation of Section 291-20 of the Income Tax Assessment Act 1997.

This section allows unused concessional contribution caps to be carried forward for up to five years, enabling individuals to “catch up” on contributions and benefit from the lower tax rate within their superannuation fund. However, the AAT emphasized that the legislation does not grant taxpayers discretion in choosing when to apply these carried-forward amounts.

“The statutory language does not refer to or suggest a discretion or election,” Olding stated. “An unused concessional contributions cap amount carried forward from previous years applies by force of law.”

The AAT also rejected the taxpayer’s argument that Division 293 tax, which applies to high-income earners making concessional contributions, did not apply to him. The tribunal emphasized that meeting the income threshold for Division 293 is sufficient, regardless of whether the taxpayer considers themselves a “high-income earner.”

Key Takeaways:

• The AAT ruled that applying unused concessional contribution caps is mandatory, not optional.
• Taxpayers cannot choose when to apply carried-forward unused caps to minimize tax liability.
• The ruling clarifies the interpretation of Section 291-20 of the Income Tax Assessment Act 1997.
• The AAT also confirmed that Division 293 tax applies to anyone meeting the income threshold, regardless of self-perception as a high-income earner.

This AAT decision provides clarity for taxpayers and tax professionals regarding the use of unused concessional contribution caps. It underscores the importance of correctly applying these caps when calculating taxable income to avoid potential penalties and ensure compliance with superannuation legislation.