Simpler Super: Super contributions and excess contributions tax
New superannuation legislation introduced several changes relevant to the superannuation contributions. One of the most significant changes is the maximum contribution limit, known as the cap amount. According to the new legislation, superannuation contributions over the cap amount are subject to extra tax of 31.5% (excess concessional contributions tax), and or 46.5%(excess non-concessional contributions tax).
The cap amount is determined by the type of contributions and the age of members making the contributions. Two types of contributions can potentially attract the excess contributions tax:
- concessional, and or
- non-concessional.
Concessional contributions
Concessional contribution is pre -tax contribution, made generally by the employer to the employee’s complying superannuation fund. The contribution is assessable income of the fund and subject to 15% tax.
Non-concessional contributions
Non-concessional contribution is the after-tax contribution and is usually a personal contribution not subject to the additional tax, providing it is within the cap limit.
Summary of
contributions caps
|
|
Concessional
cap* |
Transitional
concessional cap** |
Non-concessional cap |
|
2009–10 financial year |
$25,000
|
$50,000
|
$150,000 |
|
2008–09 and 2007–08 financial year |
$50,000 |
$100,000 |
$150,000 |
|
Tax on amounts over the cap |
31.5% (in addition to the 15% paid by the super fund) |
31.5% (in addition to the 15% paid by the super fund) |
46.5% |
|
Other information |
Any concessional contributions in excess of the cap will
also count towards your non-concessional contributions cap. |
Any concessional contributions in excess of the cap will
also count towards your non-concessional contributions cap. |
If you are under 65 years old at any time during the
financial year, you may be able to bring forward the next two
years of contributions, but certain conditions apply. This
effectively allows you to contribute up to three times the cap
at once, or at any time during the three financial years. |
*The
$25,000 concessional cap will be indexed annually from 2010–11 onwards
to average weekly ordinary time earnings (AWOTE) and rounded down to the
nearest multiple of $5,000.
**The
transitional concessional contributions cap is for those who are 50
years old or older on 30 June in a financial year and is available until
30 June 2012 and is not indexed.
If you are considering making extra contributions to super, ensure
you understand some of the consequences by reading this document.
How does the ATO assess the concessional contributions
Each financial year, superannuation funds are required to report member contribution details to the ATO. The ATO uses this information to work out if a member has exceeded the concessional contributions cap and determinates the tax liability. If a member exceeded the concessional contributions cap, the ATO will send the member a notice of assessment which will include the amount of excess concessional contributions tax, payable by the member. ATO will also send a voluntary release authority for the amount of the excess concessional contributions tax liability, the member can use to authorise the release of amount up to the tax liability amount, from the fund.
Excess concessional contributions tax is payable on the excess concessional contributions at a rate of 31.5% on the top of the 15% paid by the fund for the same contribution.
The superannuation fund pays the income tax liability, however, according to the new legislation, the excess contributions tax is the responsibility and payable by the members of the fund.
The excess concessional contributions also count towards the non-concessional contributions cap. If the contributions exceed both the concessional and non-concessional contributions caps, this can result in member paying up to 93% tax on the excess amount!
If the ATO assesses that a member has to pay excess concessional contributions tax, the member may withdraw an amount up to the amount of this tax liability from the super fund, by using the voluntary release authority provided by the ATO.
The voluntary release authority allows the member to pay the excess concessional contributions tax from the superannuation monies within 90 days after the date on the release authority unless the release amount is from a defined benefit fund. The member, however, doesn’t have to pay the tax using the release authority, but instead, the excess concessional contributions tax can be paid in a number of ways:
- from the personal money without drawing on the super
- from the personal money by using the voluntary release authority to facilitate the refund of the paid amount
- by using the voluntary release authority to instruct the super fund to pay the liability.
Non-Concessional Contributions Limits Table
|
Financial year |
Age |
Contribution Cap |
Comment |
|
2007/2008 |
Under 75* |
$150,000 |
The non-concessional cap is three times the concessional contributions cap and changes as the concessional cap changes with indexation. |
* For the age 65 to 74, a member can make personal (non-concessional) contributions to a complying superannuation fund providing the member satisfies the work test in each year a contribution is made. For members under 65 years of age, under certain conditions, a member is able to bring forward up to two years of future entitlements of non-concessional contributions of up to $450,000 over a three-year period.
How does the ATO check the non-concessional contributions
Superannuation funds are required to report members contribution details each financial year to the ATO. The ATO uses this information to work out if a member has exceeded the non-concessional contributions cap and calculates the tax liability. If the member exceeded the non-concessional contributions cap, the ATO will send the member a notice of assessment which will include the amount of excess non-concessional contributions tax, payable by the member.
ATO will also send the member a compulsory release authority for the amount of the excess non-concessional contributions tax liability that the member has to use to withdraw the full amount of the excess non-concessional contributions tax from the super fund!
Excess non-concessional contributions tax is payable on the excess of non-concessional contributions at a rate of 46.5%, and the member is liable for the payment, not the super fund.
N.B.:
- the member must withdraw the full amount of the excess non-concessional contributions tax from the super fund,
- the member’s excess concessional contributions also count towards the member’s non-concessional contributions cap. If the contributions exceed both the concessional and non-concessional contributions caps during the income year, the member can end up paying up to 93% tax on the excess amount!
- Some contributions don’t count toward the non-concessional contributions cap, including:
- contributions from personal injury payments, and
- up to $1 million of contributions from the disposal of certain small business assets.
For further detailed information regarding superannuation contributions and excess contributions tax, talk to your service provider or phone the ATO on 13 10 20.
