Understanding effects of excess contribution

Current enacted legislation

Concessional contributions

  • The excess contributions are subject to the top marginal tax rate of 46.5% (including Medicare Levy)
  • The excess contributions tax relief only applied if you had exceeded your concessional contributions cap by $10,000 or less.
  • The relief only applied to first-time breaches.
  • You only received a once only offer to have the excess concessional contributions refunded to you and assessed at your marginal tax rate, rather than pay excess contributions tax.

Non concessional contribution

  • 46.5% penalty is imposed on the individual rather than the super fund
  • Can elect to withdraw an amount equal to the tax liability from their super fund to fund the payment
  • An amount can be returned in the limited circumstances outlined in regulation 7.04 of the SIS Regulations. That is, where one of the contribution standards is not met.

Proposed legislation

Effective 1 July 2013

Concessional contributions

  • No longer subject to excess contributions tax
  • Excess amount will be included as assessable income in the individual tax return and taxed at marginal tax rate
  • Pay excess concessional contributions (ECC) charge on the increase in your tax liability
  • A 15% tax offset will be available for contribution tax already paid
  • Can elect to withdraw up to 85% of the ECC to help pay the income tax assessment
  • No more excess contributions tax relief available

Non concessional contribution

  • As part of the 2014 -15 Federal Budget, member with excess non concessional contributions will be allowed to withdraw the excess contributions and associated earnings.
  • As a result, member will not be subject to the excess non-concessional contributions tax but will be taxed on the associated earning at their marginal rate.
  • An amount can be returned in the limited circumstances outlined in regulation 7.04 of the SIS Regulations. That is, where one of the contribution standards is not met.

RELIANCE AUDITING SERVICES

Reliance Auditing Services is a specialist independent auditing services firm providing quality audits to SMSFs, companies, not-for-profits and AFS licensees all over Australia. Reliance Auditing places a huge emphasis on educating our clients to ensure they fulfil their reporting obligations.Call: 1300 291 060 or email info@relianceauditing.com.au.

DISCLAIMER: This information is an interpretation of rules, regulations and standards. It should not be considered as general or specific advice and neither purports, nor is intended to be advice on any particular matter. No responsibility can be accepted for those who act on the contents of this publication without first obtaining specific advice. Liability limited by a scheme approved under Professional Standards Legislation.