Contributions caps and taxation of contributions
Administration of excess concessional contributions
The ATO will issue an individual who has exceeded their concessional contributions cap with an excess concessional contributions determination. Together with the determination, the ATO will issue an income tax return Notice of assessment/Notice of amended assessment to advise the individual that their excess amount has been included as assessable income in their tax return.
Individuals should check that the information on the determination is correct. 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 an individual thinks the ATO has applied the law incorrectly, they can object to the excess concessional contributions determination by going through the standard ATO objection process. Individuals should still pay the liability even if they decide to object.
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. However, they have the option to elect to release up to 85% of the excess amount from their superannuation fund to pay the tax. 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
Individuals may elect to have up to 85% of any excess concessional contributions made from 1 July 2013 released from their super fund. 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 in the approved form within 60 days from when an excess concessional contributions determination or an amended determination is issued. The request must specify a valid release amount (up to 85% of the excess concessional contributions amount) and identify the superannuation interests from which it is to be released. Once made, an individual is not able to revoke an election to release excess concessional contributions.
Where there are insufficient funds in the superannuation interest from which an individual has elected to release excess concessional contributions, only part of the requested amount is released. In this situation, the ATO will notify the individual, who may then make a further request within 60 days, or such further time as the Commissioner may allow, to release the remaining amount from another superannuation interest.
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.
Superannuation providers that have been issued with a release authority are required to pay to the ATO the lesser of the following amount:
- The amount stated in the release authority; or
- The sum of the maximum available release amounts for each of the superannuation interests held for the individual in the superannuation plan.
Note: benefits held in both accumulation accounts and superannuation income streams are included in the maximum available release amount calculation; however, defined benefit interests are excluded.
The superannuation provider must notify the ATO of the payment within 10 business days from the date the release authority is issued:
- when a payment is made
- if the trustee is not required to make the payment; or
- if the amount it is required to pay is less than the amount stated in the release authority
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. The individual may be entitled to the payment of interest if there is an unreasonable delay between the ATO receiving the released amount and the payment of any refund to the individual.
It is important to note that excess concessional contributions count toward an individual's non-concessional contributions cap. However, where an individual elects to release excess concessional contributions from their super fund, their non-concessional contributions for a financial year is reduced by 100/85 of the amount released.
Excess concessional contributions amounts released from the individual's superannuation are non-assessable non-exempt income and are exempt from the proportioning rule.
The taxpayer may apply to the Commissioner of Taxation in the approved form for a determination that part or all of the excess concessional contributions be disregarded or reallocated to another income year. The application can be made once all of the relevant contributions have been made and must be made within 60 days of receiving an excess contributions tax assessment. A determination will only be issued where the taxpayer can demonstrate that special circumstances exist (ie that it was unjust, unreasonable or inappropriate to impose the liability for excess contributions tax).
The ATO has produced a Practice Statement dealing with the Commissioner's discretion to disregard or reallocate a contribution and including useful examples. See PS LA 2008/1 available at www.law.ato.gov.au. The ATO provides additional information on its sitemap 'If you disagree with your excess contributions tax assessment or determination'.
Last modified: Tuesday, July 23, 2019