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Taxpayers that sought advice to deal with incorrectly issued excess determinations for non-concessional contributions should be compensated by the ATO, says an industry law firm.
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Tax Office called to compensate after system error
07 June 2019
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Earlier this month, the ATO stated that it had identified a system error that inadvertently led it to issue incorrect pre-dated excess non-concessional contributions determinations to clients.
In order to remediate the error, the ATO announced that it would be extending the election due date for affected clients, assisting practitioners and their clients, modifying its systems to resolve the issue long-term and providing updated information to its contact centres so that they can provide advice to practitioners and their clients.
“We will extend the election dates for all affected clients so this issue will not disadvantage them,” the ATO said in a public statement.
“We will not take default action in relation to these affected clients who do not make their election by the due date.”
It also said that amended determinations will automatically issue on a case-by-case basis in the coming weeks to clients which will have a modified excess non-concessional contribution amount due once their income tax return is processed.
DBA Lawyers director Daniel Butler said that, while the ATO is clearly taking action to address the issue, it will not compensate taxpayers who have spent money on obtaining advice on this ATO correspondence that was computer generated and issued before it was reviewed.
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In the case of excess NCC determinations, he said, some clients could have easily spent a substantial sum of money seeking advice and responding to ATO excess contribution correspondence as they were threatened with significant tax liabilities.
“For instance, I prepared objections for various taxpayers to preserve their legal rights only to subsequently find out about the error. I needed to prepare the objections before the ATO deadline to preserve the taxpayers’ legal rights. The ATO officer then requested the taxpayers withdraw their objections as it was an error,” Mr Butler noted.
The ATO officer confirmed there should be no adverse impact to the taxpayers’ legal rights, he said.
“However, the law is clear that unless the ATO corrected the error, the taxpayers were legally liable for significant tax. I felt uneasy doing so without any clear legislative protection, but this was the only way to avoid further related communications from the ATO which would only give rise to further costs and inconvenience for the taxpayers,” he explained.
The ATO’s proposed action, he said, should therefore also include an undertaking to compensate affected taxpayers for the costs they incurred to manage their position in relation to this system error.
Mr Butler said these types of errors are the result of government creating incredibly complex tax and superannuation laws which are difficult for regulators to integrate into their systems.
“Our law-making is broken, politicians and Treasury should take note that being the second most complex country in the world in tax terms is not a good position to be in, and the ATO should not be held to blame for this error given the terrible legislation that exists,” he said.
“However, there should be compensation for those taxpayers who bear the brunt of system errors where legal threats to pay large tax bills are issued in error.”
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