The federal government has introduced to Parliament amendments to superannuation laws, saying they would make super simpler and fairer. One amendment relates to the 2011 budget measure that was meant to provide relief from excess concessional superannuation contributions tax.
THE federal government has introduced to Parliament amendments to superannuation laws, saying they would make super simpler and fairer. One amendment relates to the 2011 budget measure that was meant to provide relief from excess concessional superannuation contributions tax.
Far from fixing this oppressive tax, the changes are an example of a government wanting to be seen to be doing something when, in fact, because of the way the legislation has been drafted, the benefits for many taxpayers will be almost non-existent.
The main reason is the complicated way the excess contribution tax relief measures will work. When they were announced, having a one-off excess contribution of up to $10,000 not being subject to the 46.5 per cent penalty tax appeared to go some way towards fixing the problem.
In reality, because of how the maximum $10,000 excess contribution limit is applied, and how a person qualifies for the tax relief, the benefit received could be small. We, in fact, still have a penalty tax system that in exceptional circumstances can impose a penalty tax of 93 per cent on an excess super contribution.
The new legislation will apply only to people who have an excess super contribution after July 1 this year if the following conditions are met:
?The amount of the excess contributions must be $10,000 or less.
?They have not had a previous excess concessional super contribution in a year after July 1, 2012.
?They have lodged a tax return for the year the contribution relates to within 12 months of the end of that year, or within a longer period that the Tax Commissioner allows.
Under the relief measure, anyone who qualifies will have the excess contribution refunded by their super fund and, instead of paying 46.5 per cent penalty tax, will pay tax on the excess at their applicable marginal tax rate.
Once the Tax Office becomes aware of an excess contribution, and the qualifying conditions have been met, a notice of offer to accept the refund of the excess contributions will be issued. The person will have 28 days to accept the refund offer before it lapses.
The wording of this part of the legislation is where the potential benefit of the relief measures is watered down to being almost non-existent. If an offer is not accepted, the person will not be entitled to receive another offer.
This means a person with an excess super contribution of $100 in this or a later financial year, who accepts the refund and saves penalty tax of $46.50 at the expense of paying $31.15 income tax, will not be entitled to receive tax relief from any future excess super contributions.
If, on the other hand, the person rejected the refund offer and paid the excess super contributions tax of $46.50, doing so in the belief that it would be better to have the relief apply to a greater excess contribution in the future, by having rejected the refund offer they will also not be eligible for the relief on any future excess contributions.
The new legislation is a sleight of hand that any magician would be proud of. Maximising tax collections has again triumphed over fairness and equity.
Max Newnham's book, Funding your Retirement - A Survival Guide, is available in bookstores and as an e-book.
Frequently Asked Questions about this Article…
What are the federal government's recent superannuation amendments about?
The government has introduced amendments to superannuation laws intended to make super simpler and fairer. One key change targets the 2011 budget measure and aims to offer relief from the excess concessional super contributions penalty tax for some taxpayers.
Who qualifies for the excess concessional contributions tax relief?
You may qualify for the relief if your excess concessional super contribution is $10,000 or less, you haven't had a previous excess concessional contribution in a year after July 1, 2012, and you've lodged the tax return for the year the contribution relates to within 12 months (or within a longer period allowed by the Tax Commissioner). The new rules apply only to excess contributions made after July 1 this year.
How does the refund and tax treatment work if I qualify for the relief?
If you qualify, your super fund will refund the excess contribution and you will pay tax on that refunded amount at your applicable marginal tax rate instead of facing the 46.5% excess concessional contributions penalty tax.
What happens when the Tax Office (ATO) becomes aware of my excess contribution?
Once the ATO becomes aware of an excess contribution and determines you meet the qualifying conditions, it will issue a notice offering a refund of the excess. You have 28 days to accept that refund offer before it lapses.
Can I accept the refund offer more than once or save it for future excess contributions?
No. If you accept the refund offer you will not be entitled to receive another offer for future excess contributions. Equally, if you reject the offer and pay the penalty now, you also lose eligibility for the relief on any future excess contributions.
Does the $10,000 one‑off cap guarantee a meaningful tax saving?
Not necessarily. The article notes the way the $10,000 cap and qualifying rules are applied can reduce the real benefit for many taxpayers. In some cases the tax relief may be small, and in exceptional circumstances the broader penalty tax system can impose very high effective penalties (the article cites up to 93%).
When do the new excess concessional contribution rules start to apply?
The new legislation applies only to excess concessional super contributions made after July 1 in the year specified by the changes (described in the article as 'after July 1 this year'). Be sure to check the timing for your situation.
What should everyday investors consider when offered a refund of excess super contributions?
Read the ATO refund offer carefully and weigh whether accepting a potentially small tax saving now is worth using up the one‑time eligibility for relief. Because accepting or rejecting the offer removes your entitlement to future relief, consider the trade‑off between immediate tax paid at your marginal rate and the larger penalty tax you would otherwise face.
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