Excess Concessional Contributions – Recent Changes

Access Concessional Contribution

As a part of the Government’s reforms announced on the 5th April 2013, it was proposed that any excess concessional contributions will be taxed at the individual’s marginal tax rate. On 29 June 2013 the bills (Tax Laws Amendment (Fairer Taxation of Excess Concessional Contributions) Bill 2013 and the Superannuation (Excess Concessional Contributions Charge) Bill 2013) that give effect to this measure received royal assent.

Background 

The concessional contributions cap is $25,000 for the 2013-2014 year and this cap will be set at $35,000 for those individuals 59 years and over at 30 June 2013.

Currently, individuals pay excess concessional contributions tax at 31.5% on any excess concessional contributions to their super fund and the excess amount is also taxed within the fund at 15%. This effectively means that concessional contributions exceeding the annual cap are taxed at the top marginal tax rate of 46.5%.

For the 2011-2012 and 2012-2013 income years, individuals with excess concessional contributions of $10,000 or less have had the once-off choice (subject to certain criteria) to elect to have the amount refunded and included within the individual’s own tax return.

Excess concessional contributions from 1 July 2013

1. Excess concessional contributions are included in individual’s assessable income and taxed at their marginal tax rate and subject to excess concessional contributions charge to account for the deferral of tax. Individuals have access to a non-refundable offset equal to 15% of their excess concessional contributions. The individual will have the choice of the paying the excess contribution tax personally or through their super fund.

2. The Individual can make an election to release any amount up to 85%  of their excess concessional contributions from their superannuation account. This proportionately reduces the individual’s non-concessional contributions. The released contributions is send to the ATO, ATo will make the necessary amendment to the individual’s tax return and issue the tax refund from the amended assessment.

3. The excess concessional contributions charge is a newly introduced charge, it’s payable at a rate based on the 90-day bank accepted bill rate plus 3% uplift and will be calculated and compounded daily. The charge will apply on the outstanding tax liability, from the start of the income year in which the excess concessional contribution relates through to the date on which a payment is due under an individual’s first assessment notice for the year. If applicable, this charge is subject to shortfall interest charge and general interest charge in the same way as the income tax liability to which the charge relates.

Legislation references 

The Tax Laws Amendment (Fairer Taxation of Excess Concessional Contributions) Act 2013 inserted Division 291 – Excess Concessional Contributions. The Division states:

  • There is a cap on the amount of superannuation contributions that may receive concessional tax treatment for an individual in a financial year.
  • Superannuation contributions that exceed your concessional contributions cap are included in your assessable income for the corresponding income year.
  • A tax offset compensates for the tax that generally applies to the contributions in the superannuation fund.

The Act also introduced in Taxation Administration Act 1953 to contain rules about excess concessional contributions charge (Division 95) and releasing excess concessional contributions from superannuation (Division 96).

Division 95 states:

  • You are liable to pay a charge on the income tax you pay on excess concessional contributions.
  • The charge is applied at a uniform rate that is the same as the shortfall interest charge.
  • The period for the excess concessional contributions charge starts at the start of the income year and ends just before tax is due to be paid under your first assessment for the year.

Division 96 states:

  • You may elect to release up to 85% of your excess concessional contributions for a financial year from a superannuation interest.
  • Superannuation providers will usually be required to pay an amount from the superannuation interest. However, for certain interests the provider may choose whether or not to pay.
  • Released amounts are paid by the superannuation provider to the Commissioner.
  • You get a credit for the released amount. Surplus credits are refunded to you under Division 3A of Part IIB.