A new law has been introduced by the government to allow an individual who has exceeded their concessional contributions cap by $10,000 or less, the option to have the excess concessional contributions withdrawn from their superannuation fund and refunded to them. If this happens to you and you accept the offer for a refund from the Australian Taxation Office (ATO), the refunded excess contributions will be assessed as an income and taxed at your marginal tax rate.
Previously, this option was not available. If you had excess concessional contributions, you’d have had to pay the excess contributions tax at an additional 31.5% of the excess contributions, on top of the 15% contributions tax, totalling 46.5%.
A concessional contribution is employer contribution which includes the compulsory 9% (increasing to 12% by 2019) superannuation guarantee contributions, any additional employer contributions, your salary sacrifice and personal contributions that you have claimed a tax deduction on it. These types of contributions are concessionally taxed at 15%. When your super fund receives concessional contributions, they are required to deduct 15% contributions tax and paid to the ATO.
The concessional contributions have a cap; currently, you or your employer can only put $25,000 into your super fund for you each financial year. If you exceed this limit, you’ll have to pay an additional 31.5% tax to the ATO called “excess contributions tax”. Therefore, the total tax you pay on excess concessional contributions is 46.5%.
The good news is, instead of paying 46.5% tax on excess concessional contributions, you will now have the option to request for the excess contributions to be withdrawn from your super fund and refunded to you as an income. The refunded amount will be taxed at your marginal tax rate. This measure commences from the 2011/12 financial year and only available if you have excess concessional contributions of $10,000 or less. This is only available as a one-off opportunity, which means that once you have exceeded the concessional contributions cap in any financial year, starting from 2011/12 and regardless whether or not you accept the offer of a refund, will not be eligible again in any subsequent year.
You will receive an offer of a refund from the ATO if they are satisfied that the following conditions have been met:
- you have exceeded concessional contributions cap for a financial year;
- the amount of excess concessional contributions is $10,000 or less;
- you did not exceed concessional contributions for an earlier financial year from 1 July 2011;
- you have lodged an income tax return for the relevant financial year within 12 months of the end of that year, or within such longer period as allows by the ATO.
How it works
- your superannuation fund reports all contributions received from you or your employer, by the end of October each year;
- you lodge your tax return for the applicable financial year;
- once the ATO has determined that you have excess concessional contributions, they will issue an excess contributions tax notice to you and at the same time, offer you a refund of the excess contributions instead of paying the excess conditions tax;
- you have 28 days to accept the offer or pay the excess contributions tax. If you don’t think you have exceeded the concessional contributions or don’t agree with the ATO’s assessment, you can dispute the case and ask your super fund to make adjustments and report the correct contributions;
- if you accept the offer, the ATO will send a “Release Authority” to your super fund to release 85% of the excess contributions (this is because your super fund has already paid 15% contributions tax to the ATO when they first received the contributions);
- the ATO amends your tax return assessment to include the refunded concessional contributions as assessable income. You will receive a tax offset equal to 15% of the excess contributions that the ATO previously received from your fund;
- the ATO issues a notice of assessment for your amended income tax assessment and sends you a refund.