Did you know that excess tax of up to 93% can be payable if you contribute too much into your superannuation?
For the 2013/2014 financial year, the amount that can be contributed to superannuation and a tax deduction claimed (known as concessional contributions) is $25,000 if you are aged under 59 years or $35,000 if you are aged 59 years or over.
For the 2013/2014 financial year, the amount that can be contributed to superannuation and tax deduction not claimed (known as non-concessional contributions) is $150,000.
There have been changes made to the way excess superannuation contributions tax is now being assessed.
Below is a summary of the changes that have recently been enacted.
No choice in the refund of excess concessional contributions
For the 2011/2012 and 2012/2013 financial years, individuals with excess concessional contributions of $10,000 or less, have the choice to have the excess amount refunded and included in their taxable income.
From the 2013/2014 financial year onwards, individuals now automatically have the excess concessional contribution added back to their assessable income and taxed at their marginal rate.
Refund of excess contributions is not a “one-off”
For the 2011/2012 and 2012/2013 financial years, the Tax Office offered a “one-off” refund for those who breached their concessional contributions cap. If you breached your concessional contributions cap post 1 July 2011, you only had one chance for a refund.
As a result of the removal of excess concessional contribution legislation from 1 July 2013, it does not matter how many times you breach the excess concessional contributions cap, these amounts will already be refunded and included in your personal tax return.
Interest is now Payable
No interest applied to amounts that were refunded to individuals and included within their personal tax returns.
From 1 July 2013, interest will be applied to amounts that are refunded to individuals. Also known as the Excess concessional contribution charge (ECCC), the ECCC will apply from the start of the income year in which the breach occurred and will be calculated on the outstanding liability through to the date on which a payment is due.
Excess contribution goes to a different place
As part of the previous “one-off” refund process where a member elected to have the concessional contribution refunded, they were required to send the remaining 85% of their concessional contribution to the Tax Office. The Tax Office then made the necessary amendments to the individual’s tax return. After deducting the appropriate tax and any other potential debt owed to the Government, an individual was issued with their amended tax assessment.
Under new measures, the superannuation fund will retain the contribution until such a time that the individual may request a payment under a voluntary release authority to pay the tax liability.
It is still a voluntary release from the superannuation fund to pay the liability
Where the tax liability is a result of an excess concessional contributions breach, the individual has the ability to request payment from their superannuation fund using a voluntary release authority.
This has not changed under the new reforms. However, should the individual have the capacity to pay the tax liability personally, they do not need to draw funds from their superannuation fund.
You will be entitled to a tax rebate for the contributions tax already paid
Where an individual has an amount refunded, whether chosen previously or by compulsion, the contributions tax paid by the superannuation fund will become a 15% tax rebate in the individual’s tax return.
If you have any questions regarding how these reforms apply to your individual circumstances, please contact Ellingsen Partners.