In the 2011-2012 Federal Budget the government announced that from 1 July 2011, individuals who breach the concessional contributions cap by $10,000 or less can request the excess contributions be withdrawn from their super fund and refunded to them.
Tax and Superannuation Laws Amendment (2012 Measures No. 1) Act 2012 which received royal assent on 27 June 2012, allows eligible individuals to choose to have 85 per cent of their excess concessional contributions of $10,000 or less refunded to them. This measure will only apply for first time breaches of the concessional cap. Those excess concessional contributions will be taxed at the individual’s marginal tax rate.
Excess concessional contributions cannot exceed $10,000
The amount of any excess concessional contributions for the income year must be $10,000 or less. Where an individual has excess concessional contributions of more than $10,000 for an income year, the entire excess amount will be disqualified from the refund concession (i.e. not even the excess amount up to the $10,000 will be eligible).
A once-off concession
Only first-time breaches of the concessional contributions cap (commencing from the 2012 financial year) can qualify for the refund. This means that if an individual has excess concessional contributions in any income year beginning from 1 July 2011 to which the concession does not apply because the excess contribution exceeds $10,000, they will not be eligible to have a subsequent excess concessional contribution (which otherwise would qualify for the concession) refunded.
If an individual exceeds their cap by $10,000 or less in more than one income year beginning from 1 July 2011, only the first year will be eligible for the refund.
Individual circumstances before 1 July 2011 will not affect eligibility for the refund. Any excess concessional contributions an individual may have had in a prior year (i.e. for the 2011 and earlier income years) will be disregarded when determining eligibility for this refund concession.
Once the ATO has identified that an individual is eligible for the refund, the ATO may issue the individual with a written notice of offer for a refund.
The individual may accept the offer using the approved form within 28 days after the notice is issued. The ATO will issue a compulsory release authority to the fund requiring the fund to release 85% of the excess concessional contributions. The fund will pay the amount to the ATO, and provide a statement in the approved form to the ATO advising the payment.
The total excess contributions are assessed at individual’s marginal tax rate. Since the fund has paid 15% tax on the contribution, the individual will get a 15% refundable tax offset.
Any amount remaining will be refunded to the individual.
An individual may also allow the offer to lapse if the individual does not want to accept the offer.
Which individual should accept the refund offer
The excess concessional contributions will be taxed within the super fund at 46.5% (15%+31.5%). Am individual who pays tax at a marginal rate of less than 46.5% (including Medicare levy) will generally end up increasing their after-tax income by accepting the offer.