Monthly Archives: May 2014

2014-15 Budget rings in changes to excess contributions tax regime

Among the measures in the 2014-15 budget are changes to excess contributions tax.  The changes would allow over-contributors to withdraw the excess.  This removes a tax some felt went too far in discouraging excess contributions.  However, a result of removing the disincentive of excess contributions tax may be further erosion of the tax base – by giving greater flexibility to those contemplating asset transfers into super. The current system Currently, contributions made to a superannuation fund in respect of a person are subject to excess contributions tax if they exceed a statutory cap.  The caps for the 2014 year are $25,000 for pre-tax contributions (‘concessional contributions’) ($35,000 for those over 59 years of age) and $150,000 for after-tax contributions (‘non-concessional contributions’).  There is a special bring-forward rule for those over 65 – they can use up to three years’ worth of caps ($450,000) in one year: see here for details. The caps are set to increase in the 2015 year: see here for details. The current system serves both as a disincentive to over-contributing, and a measure to equalise the tax paid on the excess inside and outside of super. First, equalisation.  Excess contributions tax is levied on each dollar by which a contribution exceeds the applicable cap – at rates which top up the difference between the rate of tax paid on super (either 15% or 0%) and the top marginal rate (plus the applicable levies).  In other words, currently the system assumes that if you move assets into super, you shelter those assets from tax at the top marginal rate, and to the extent of any excess over the caps, it imposes tax to match the treatment applicable to top-bracket taxpayers outside of super.  Any earnings on the excess (eg, investment returns in the year of contribution and all subsequent years) are taxed at the concessional rate. Excess contributions tax also serves as a disincentive to over contributing.  This has been a source of angst for some who perceived it as a double hit.  To get the concessional tax treatment applicable to super, taxpayers have to lock up savings until the preservation age (somewhere between 55 and 60, depending on your year of birth).  Any part of those savings which was subject to excess contributions tax was lost forever, and unavailable for investment opportunities (including tax effective ones) outside of super. Part of the reason for the angst has been the relative ease with which a person can exceed their cap through inattention or by reasons outside of their control.  Examples include: making a bank transfer which hits the receiving account after 30 June: see here, misunderstanding the rules: see here, failing to give a notice of intention to claim an amount as a concessional contribution: see here, or an employer making a salary sacrifice contribution late, so that it falls into the next financial year: see here. The other reason for angst has been the very narrow discretion given to the Commissioner to make determinations to disregard or re-allocate excess contributions to the appropriate year: s 292-465 of ITAA 1997.  The discretion can only be exercised in special circumstances (ie not in any case where Parliament may be taken to have intended excess contributions tax to be imposed) and where doing so does not run contrary to the disincentive and equalisation objectives identified above. What is the announced measure? The measure announced in yesterday’s budget is that contributions in excess of the con-concessional contributions cap made from 1 July 2013 would be able to be withdrawn, with earnings on those contributions to be taxed at an individual’s marginal tax rate.  (Of course, the following remarks are preliminary: to properly understand the effect of the measure, we need to see the detail.) One assumes that, at least in the case of concessional (pre-tax) contributions, an adjustment will also need to be made to the withdrawing person’s taxable income for the relevant year to include the withdrawn amount.  Any other system would give rise to avoidance risks.  If this assumption is correct, then the equalisation object of excess contributions tax will be preserved – and arguably made fairer, in that the excess will be taxed at the taxpayer’s marginal rate, rather than the top marginal rate. The disincentive object of excess contributions tax is of course diminished by its removal. There is of course a compliance/integrity risk inherent in this, but this can presumably be managed within the existing system.

Sam Ure appeared as counsel in Chantrell and Commissioner of Taxation [2012] AATA 179; McMennemin and Commissioner of Taxation [2010] AATA 573; and Confidential and Commissioner of Taxation [2013] AATA 110, each of which concerned the application of the discretion in s 292-465.


Two short points – my take on s 18C

18C was enacted to prevent hate speech. Supporters of its repeal say 18C should go because it inhibits free speech. There are competing priorities to be balanced. Which should prevail?  In my view, the answer falls out when two points are made.

Section 18C of the Racial Discrimination Act 1975 makes it unlawful to engage in public conduct that is reasonably likely to offend, insult, humiliate or intimidate a person or group on the basis of race.  To offend 18C, the conduct must be done in public, and there are exceptions if the conduct is an artistic work, part of genuine academic, artistic or scientific discourse or is part of a fair and accurate report of an event or matter of public interest: s 18D.

18C was enacted to prevent hate speech. Supporters of its repeal say 18C should go because it inhibits free speech. Understanding where the balance should be struck in my opinion requires consideration of two points.

The first point is that 18C is out to prevent actual harm. Most people accept that, like other forms of bullying, hate speech does do harm. It hurts at the individual level. Perhaps this is hard for the thick-skinned political animals to appreciate, if they have never belonged to a group that feels it starts life from behind. But I think words can do harm, and hate speech actually hurts people and holds some people back. I think most people would also accept that there’s a risk hate speech can do harm at a societal level too, by undermining social cohesion and harmony.

So what are we giving up by legislating to prevent hate speech from harming the vulnerable among us or damaging our social cohesion?

Well, we’re giving up freedom of speech, which we are told is a right or freedom that requires protection (or at least no legal encroachment). But it doesn’t answer the question merely to invoke freedom of speech without further examination. A little more reflection on what we’re giving up is needed.

A few moments’ consideration of the right to freedom of speech reveals that it is not an absolute right. Like many human rights, it intersects with other rights and it has its limits. For example, most would accept that the law of defamation places an appropriate limit on free speech. Similarly, many would say the ban on tobacco advertising is another worthwhile limit on free speech. On the other hand, other kinds of speech serve important purposes in a democratic society. The best example is political communication, which is protected impliedly by our constitution. This protection means that, for example, I can say ‘this government is the worst we’ve ever had, let’s throw them out at the next election’ – or something like it – without ever committing an offence under a valid Australian law. But this is only one kind of speech, and there is no suggestion we have given this freedom up.

The second point is this: accepting that the right to free speech is not absolute, and that not all speech of any kind is inherently worthy of protection, then in order to decide whether a law inhibits free speech too much, we need to work out what types of things we want the freedom to say, and why.

And when I think about what we lose if people can’t engage in public conduct that is reasonably likely to offend, insult, humiliate or intimidate a person or group on the basis of race I really can’t see what the fuss is about. There’s no social benefit to that type of communication. It serves no innate human need (remembering genuine artistic expression is exempt). I mean, what have we lost if a white man can’t use the n-word?  Why does he want to?  What purpose does it serve for him to be allowed to?

We’re talking about a pretty small, arid patch of freedom.  When I weigh losing that against the harm of hate speech, for me, the choice is a no-brainer.