Super excess contribution tax relief option: only a temporary bandaid
10 May 2011: Aware that there was increasing public anger at penalties caused by minor breaches of the concessional contributions cap, the Government used the Federal Budget to announce some minor relief. With effect from 1 July 2011, individuals will have a once only option to remove excess concessional contributions from their superannuation fund and have that excess assessed to them at their marginal tax rate.
“This has the effect of removing the effective tax rate of 46.5% on the excess concessional contribution, and may in some cases prevent individuals from triggering further draconian penalties in relation to non-concessional contributions,” said Deloitte Superannuation partner John Randall.
Randall explained that under the proposal the amount of excess contributions that can be removed from a fund is capped at $10,000, and will only be available for the first year from 1 July 2011, in which an excess concessional contribution occurs.
“In our view the Government has missed an opportunity to provide a workable solution to the excess concessional contributions tax problem. At an industry level it is like using a bandaid for a severed artery, it won’t stop the bleeding as many breaches of the concessional contributions caps on an ongoing basis are due to circumstances that are usually outside an individual’s control,” said Randall. “These can include excess contributions caused by compulsory employer contributions by multiple employers, for instance.
“At the very least the Government should have extended the relief to every year, rather than just the first year, in which a breach of the cap occurs,” he said.
“The situation will only become worse for these individuals as salaries increase and the compulsory superannuation contribution rate increases to 12%. Most people are not in a position to anticipate or control the timing or amount of contributions that must be made,” Randall explained.
“The proposed change means that individuals will need to be even more vigilant in monitoring their superannuation contributions,” said Randall. “For example, if a person exceeds the concessional contribution cap in 2011/12 by $1, they will not be able to avail themselves of the relief if they breach the cap in 2012/13 by up to $10,000,” he explained.