Excess Concessional Contributions –
How does the new rule affect you?
From the 2014 financial year (1/7/2013 – 30/6/2014), the way contributions tax applies to excess concessional contributions has changed. If you exceed the concessional contributions cap for a financial year, the excess contributions will be taxed based on your marginal tax rate. This will not impact too many people. You will only be impacted if you’ve exceeded the concessional contributions cap whether by mistake or on purpose.
Marginal tax rates for 2014 financial year
|Taxable income||Tax on this income|
|0 – $18,200||Nil|
|$18,201 – $37,000||19c for each $1 over $18,200|
|$37,001 – $80,000||$3,572 plus 32.5c for each $1 over $37,000|
|$80,001 – $180,000||$17,547 plus 37c for each $1 over $80,000|
|$180,001 and over||$54,547 plus 45c for each $1 over $180,000|
The old excess concessional contributions tax rule
In previous financial years, if you had exceeded the concessional contributions cap, you would have had to pay the excess concessional contributions tax (ECT). The ECT is an additional 31.5% of the excess contributions. This is on top of the 15% contributions tax already deducted and paid by your super fund on receipt of the contributions. The total tax you’d have had to pay would have been 46.5% and this applied to everyone regardless whether you were a low or high income earner.
What is a concessional contribution?
Concessional contributions include superannuation guarantee (SG), salary sacrifice, additional employer voluntary contributions & a personal contribution for which you claimed a tax deduction.
What is a concessional contributions cap?
This is the maximum concessional contributions an individual can make in a financial year without having to pay additional tax. The concessional contribution is taxed at 15% by the ATO (contributions tax), deducted by your super fund after it has been allocated to your account.
For the 2014 financial year the concessional contributions caps are:
$25,000 for everyone under the age of 60;
$35,000 for everyone aged 60 or over (and for anyone aged 50 and over from the 2015 financial year)
If you exceed these caps, the excess amount will be included in your assessable income and be taxed at your marginal tax rate.
You should note that excess concessional contributions are counted towards the non-concessional contributions cap ($150,000pa) and if you’ve exceeded the non-concessional contributions cap, you may also have to pay additional tax.
What is the process?
Each year superannuation funds report the total contributions they receive from or on behalf of a member to the ATO. This must be reported by 31 October for the financial year just passed. The ATO uses this information to assess whether or not you’ve exceeded the caps.
If you have excess concessional contributions, the ATO will send you an excess concessional contributions determination. If you don’t agree that you have breached the relevant cap, you can object to the determination. Superannuation funds can make a mistake when they report the contributions to the ATO. So the first thing you should do is contact your fund to make sure they have reported your contributions correctly.
What are your options?
If you have excess concessional contributions, the excess amount will be included in your assessable income and you have the option to either leave these contributions in superannuation or withdraw it. The maximum amount you can withdraw is 85% of the excess amount as 15% has already been paid to the ATO by your fund as a contributions tax. You’re entitled to the 15% tax offset. When the ATO assesses your total tax liability, they will have already the 15% tax offset into consideration.
The excess amount you choose to withdraw from superannuation will not be counted towards non-concessional contributions cap.
If you elect to have excess contributions withdrawn/ released from your fund, you must tell the ATO within 21 days from receiving the notice by completing the appropriate election form.
What must your superannuation fund do?
Once the ATO has received your valid request to release the excess contributions, they will issue a Release authority in respect of the amount, to your super fund. Your super fund has 7 days to pay the amount to the ATO. The ATO will release the leftover amount to you after working out and deducting your tax liability which includes your 15% tax offset entitlement.
Excess concessional contributions charge
If you have excess concessional contributions, you will have to pay an excess concessional contributions charge. This charge is levied from the first day of the financial year until the day when your income tax liability was first due.