The Government will allow individuals the option of withdrawing superannuation contributions in excess of the non-concessional contributions cap made from 1 July 2013 and any associated earnings, with these earnings to instead be taxed at the individual’s marginal tax rate. The measure will seek to provide a process to addresses all inadvertent breaches of the superannuation contribution caps where the error would result in a disproportionate tax penalty. Final details of the policy will be settled following consultation with key stakeholders in the superannuation industry.
Excess non-concessional contribution – Currently, superannuation contributions that exceed the non-concessional contributions cap are taxed punitively at 46.5% (equivalent to the top marginal tax rate plus Medicare levy). Given that non-concessional contributions come from income that has already previously been taxed, the Government has acknowledged that an overall tax rate of up to 93% can apply to excess non-concessional contributions.
Non-concessional contributions include contributions, which are not included in the assessable income of the receiving superannuation fund, eg non-deductible personal contributions made from the member’s after-tax income (formerly known as undeducted contributions). The annual non-concessional contributions cap is currently id=”mce_marker”50,000 (but rising to id=”mce_marker”80,000 from 2014-15). The bring-forward rule currently allows a one-off non-concessional contribution up to $450,000 over 3 years (or $540,000 over 3 years from 2014-15).
Option to withdraw excess contributions – For any excess non-concessional contributions made after 1 July 2013, the Government will allow individuals to withdraw those excess contributions and associated earnings. If an individual chooses this option, no excess contributions tax will be payable and any related earnings will be taxed at the individual’s marginal tax rate. Individuals who leave their excess non-concessional contributions in their superannuation fund will continue to be taxed on these contributions at the top marginal tax rate.
Non-concessional contributions in excess of a person’s cap are currently taxed at 46.5% (47% from 1 July 2014): s 5 Superannuation (Excess Non-Concessional Contributions Tax) Act 2007. The liability for this tax is currently levied on the individual who must withdraw an amount from her or his superannuation fund equal to the tax liability by providing the release authority to her or his superannuation provider within 21 days.
Consistency with excess concessional contributions – The Acting Assistant Treasurer, Senator Mathias Cormann, said the measure will ensure that the tax treatment of both excess concessional contributions and non-concessional contributions is broadly consistent. Since 1 July 2013, taxpayers have been given an option to withdraw excess “concessional contributions” and instead have them included in their assessable income from the 2013-14 income year.
Note that an individual’s “excess concessional contributions” are also included in their non-concessional contributions. However, the changes to the excess concessional contributions from 1 July 2013 enable a taxpayer to elect to release up to 85% of their excess concessional contributions from their superannuation fund to the Commissioner as a “credit” to cover the additional tax liability of having the excess contributions included in assessable income. If an individual elects to release an amount of their excess concessional contributions, the amount of their excess concessional contributions is reduced by 100/85 of the released excess concessional contributions for the purpose of determining their non-concessional contributions. This seeks to ensure that an individual has the option to avoid the automatic operation of the $450,000 bring forward rule ($540,000 from 2014-15).
Inspector-General’s ECT report – The Acting Assistant Treasurer said the proposal, to allow the withdrawal of excess non-concessional contributions, deals with both policy recommendations made in the Inspector-General of Taxation’s report to the Tax Office’s approach to superannuation excess contributions tax (ECT). Senator Cormann said that the Inspector-General’s ECT report made 9 other recommendations to improve the ECT system, including through further ATO assistance being provided to taxpayers in monitoring their contribution levels. The Inspector-General’s ECT report, including the Tax Office’s response, is available at http://www.igt.gov.au.
Date of effect – The measure will apply from 1 July 2013. It is expected to have a cost to revenue of $40.1m over the forward estimates period.
Source: Budget Paper No 2 [p 19]; Acting Assistant Treasurer’s press release, 13 May 2014
[WTB 20, 13/5/14]