Who is liable for excess contributions tax

Some scope also exists for concessional contributions to be made by an individual on their own behalf where they are not an employee. Non-concessional contributions are predominantly made up from after tax income, and can include personal contributions that have not been claimed as a deduction, and spouse contributions.

Excess concessional contributions are counted towards the non concessional cap. The hidden danger is that where a non-concessional contribution is brought forward unexpectedly from a future income year, this may affect any planned use of the full bring forward amount in a future year, potentially resulting in excess contributions.

A recent change has relieved some of the burden of the previous excess concessional contributions regime. This is designed to neutralize any benefit that a super fund member may receive from the excess contribution being held in a concessionally taxed environment for the period up to the time the consequent tax return is processed.

Non-concessional contributions can include: personal contributions that your employer makes from your after-tax income contributions your spouse makes to your super fund personal contributions not claimed as an income tax deduction contributions in excess of your concessional contributions cap which have not been withdrawn from the superannuation fund contributions in excess of your capital gains tax cap amount; and most transfers from foreign super funds. What are the caps? Contributing in excess of the cap You can contribute more than the caps, but you should be aware that you may have to pay additional tax on the excess amounts.

Tips to avoid going over the caps If you claim a tax deduction for your personal contributions, remember this means they will count against your concessional contributions cap, not your non-concessional contributions cap. Contributions count in the year they are received by the fund, not in the period in which they accrued. Therefore, you should ask your employer when the last contribution to your fund for the financial year will be so that you have all the right information.

Allow sufficient time for payments to be processed by your fund. You should check when your contribution is likely to be received by your fund. If using a third party, such as a financial planner to make the contributions, they need to ensure the contribution arrives at the fund before the end of the year. If in doubt, you should check with your fund about when your contributions have been received. You may also like to speak to your super fund about whether you should adjust your intended contributions in the next year to avoid making excess contributions.

The determination further outlines the actions required by the client: — Within 60 days, the client can elect to release up to 85 per cent of the excess concessional contribution from super, which will be directed towards paying the additional tax.

Assuming an interest rate of 4. Assuming a rate of 4. Exceeding the non-concessional contribution cap From 1 July , legislation introduced fairer treatment of excess non-concessional contributions. The excess non-concessional contribution determination will outline: — The amount of excess non-concessional contributions; — Associated earnings; and — Total amount that can be released.

How the associated earnings are calculated The associated earnings amount is determined using three variables: — The excess non concessional contribution amount.

Take Peter, for example, who is 60 and receiving a tax-free pension income. He does not need to complete a tax return, as he has minimal investment income. If a client exceeds their contribution cap and realises they have done so, they cannot proactively withdraw the excess themselves assuming they had met a condition of release. They need to wait until the ATO issues the excess determination and then act in accordance with these instructions. To minimise penalties from breaching their caps, clients should generally complete their tax return as quickly as possible, which may reduce the period over which interest is calculated.

A client can release funds from an account based pension. In this case, the withdrawal would be taken proportionately and would count towards the minimum pension payment.

ATO discretion to reallocate or disregard contributions Section and section of the ITAA provides the Commissioner with discretion to potentially disregard excess contributions or reallocate them to another financial year upon application by an individual in the approved form. Other factors that may be considered a special circumstance include: — If a contribution would be more appropriately allocated towards a different financial year.

Making a personal deductible contribution but then having insufficient taxable income to offset the deduction. Increasing assessable income as a result of including associated earnings may impact which of the following: a.

Division tax. Medicare levy surcharge. Child support. All of the above. True b. Enjoying this content? Don't miss out on regular updates direct to your inbox. Forgot password? Forgot username? Click here to download. The ATO makes assessments and determinations based on information provided by superannuation funds and the individual's tax return. There is a possibility that the individual's super fund has incorrectly reported the contribution. If there has been a mistake, the super fund can re-report the contribution to the ATO.

A fund can't re-report contributions simply to assist its member to avoid exceeding one or more contributions caps. If there's no error in the ATO's excess concessional contributions determination, the individual should pay the tax liability as stated in the determination using their own money.

It is important to note that excess concessional contributions excluding the grossed up amount of those that are released count toward an individual's non-concessional contributions cap.

Electing to release excess concessional contributions. This may be necessary, for example, to allow the individual to have enough funds available to pay income tax on their excess concessional contributions.

An individual must make such an election to the ATO through their MyGov account within 60 days from when an excess concessional contributions determination or an amended determination is issued. Once made, an individual is not able to revoke an election to release excess concessional contributions. Once an individual has made an election, the ATO will issue a release authority to the member's super fund.

The superannuation provider has 10 business days from the date of issue of the release authority to release this amount to the ATO, unless a further period had been allowed by the ATO. Excess concessional contributions released to the ATO are applied as a credit against the individual's tax liabilities. To the extent the released amount exceeds the individual's liabilities, it is refunded to the individual.