Contributions caps and taxation of contributions
Administration of excess non-concessional contributions
If an individual exceeds their non-concessional contributions cap, the ATO will issue them an excess non-concessional contributions determination, which must specify the following amounts:
- the amount of excess non-concessional contributions,
- the associated earnings amount calculated for the relevant period, and
- the total amount that can be released (i.e. the total release amount: excess non-concessional contributions plus 85% of associated earnings).
From 1 July 2018
Effective from 1 July 2018, Division 96 of Schedule 1 of the Tax Administration Act 1953 (TAA) which contained rules for releasing excess non-concessional contribution amounts was repealed and replaced by TAA Schedule 1 Division 131. This amendment is to provide a simplified and consolidated regime for the release of superannuation money following the issue of an excess concessional or non-concessional contributions determination or an assessment of Division 293 tax.
Once the excess non-concessional contributions determination has been issued, the individual may request, in the approved form, for the Commissioner to release an amount from superannuation. This request must be made within 60 days of the issue of the notice of determination (or such further time as allowed by the Commissioner).
The amount that can be released is:
- 100% of the excess non-concessional contributions; and
- 85% of associated earnings.
The full associated earnings amount stated on the excess non-concessional contribution determination will be included in the individual's assessable income and taxed at their marginal tax rate. A non-refundable tax offset equal to 15% of the associated earnings is applied. The ATO will amend the individual's tax return accordingly.
When making the election to release contributions, the individual will have to nominate one or more super funds to release the amount from. Once made, a request is final and irrevocable.
The maximum available release amounts for each superannuation interest includes the total amount of all the superannuation lump sums that could be payable from the interest at that time. This would include amounts held both in accumulation phase accounts and superannuation income streams. However, defined benefit interests are not included when calculating the sum of the maximum available release amounts for an individual's superannuation interests.
Where there are insufficient funds remaining in the superannuation interest, only part of the identified amount will be released. In this situation, the ATO will notify the individual who may then make a further request within 60 days for the release of the remaining amount from another superannuation interest.
Upon receiving the election form, the ATO will send a release authority to the nominated super fund. The super fund will pay the ATO an amount equal to the excess non-concessional contributions amount and 85% of the associated earnings. The super fund will have 10 working days to action a release authority. (Note, for the period between 1 July 2018 and 31 October 2018 the super fund has a temporary extension of 20 days to make the payment.)
The super fund will release the money to the ATO, the ATO will then use the money to offset any outstanding tax liability the individual may have and any remaining balance will be paid to the individual.
What if the individual doesn't elect to release amounts from super within 60 days?
One of the changes from 1 July 2018 is that if an individual has not made a request to the Commissioner within 60 days of the issue of the excess non-concessional contributions determination, the ATO can issue release authorities to superannuation providers directly. This amendment essentially makes releasing excess non-concessional contributions and associated earnings the responsibility of the Commissioner.
Previously, if an individual did not make an election about the release of an amount upon receiving an excess non-concessional contributions determination, no amount would be released from their superannuation at that time. This would almost always result in the individual incurring excess non-concessional contributions tax of 47% on the excess non-concessional contribution amount. The excess non-concessional contribution tax liability would then need to be released from the individual's superannuation interests.
From 1 July 2018, the default position, in the absence of a request by the individual, is for the ATO to release the amount of an individual's excess non-concessional contributions (plus 85% of associated earnings). However, an individual may still request the ATO to not release an amount. This request will prevent the Commissioner from seeking the release of the full amount of the excess non-concessional contributions. However, it will not affect any subsequent mandatory release relating to the consequential excess non-concessional contribution tax liability. See section: Compulsory release authority for excess non-concessional contributions tax amount below.
If the member doesn't have any superannuation interest and therefore is unable to release any amount, the ATO will determine that and no further release will be required.
|Example: Jack continued
Jack receives an excess non-concessional contributions determination on 31 December 2018 advising him of the excess non-concessional contributions amount of $100,000 and associated earnings amount of $13,976.
If Jack does not make a request for the release of any amount from his superannuation interests within 60 days of the date on the determination, the ATO will issue release authorities to superannuation providers holding superannuation interests for Jack to seek the release of the $100,000 + 85% of $13,976.
Jack will not have to pay 47% on the excess non-concessional contributions amount of $100,000. However, the associated earnings amount of $13,976 would be included in his assessable income and he'd be entitled to a tax offset of $2,096.
If Jack wants to retain as much of the contribution inside super, and requests the ATO to not release any amount, he will then be subject to excess non-concessional contributions tax of 47% on $100,000. The ATO will issue Jack with an excess non-concessional contribution tax assessment and he will have to pay the tax liability ($47,000) within 21 days of the assessment notice.
It is also mandatory for the excess non-concessional contributions tax liability of $47,000 to be released from any of Jack's superannuation interest.
|1 July 2018 changes relating to releasing funds from the Commonwealth Superannuation Scheme (CSS)
Accumulated supplementary member contributions and accumulated funded employer productivity contributions can be released at any time in relation to a release authority issued by the Commissioner. Prior to 1 July 2018, accumulated supplementary member contributions and accumulated funded employer productivity contributions cannot be released until the member satisfies a condition of release.
Release determinations issued prior to 1 July 2018
For release determinations issued prior to 1 July 2018, once an excess non-concessional contributions determination had been issued, the member had 60 days from the date of the determination to give the ATO a notice (on an approved form) electing for the release amount to be paid. In the notice, the member was also required to nominate from which fund (or funds) they wanted the amount released.
Once the election was made it could not be revoked. Only full elections could be made, so for example, a member could not elect to withdraw only part of the contributions made above their non-concessional cap.
Where a member had elected to release their excess non-concessional contributions, the ATO issued a release authority to the member's nominated fund (or funds) or any other fund the ATO considered was holding a superannuation interest for the individual (or both). Where a trustee received a release authority, it had to pay the member the amount specified within 21 days (or a further period allowed by the Commissioner).
Where a trustee received a release authority under these rules, it could not refuse to pay the amount unless the member only held a defined benefit interest in the fund. In this case, the payment of the release amount was at the discretion of the trustee.
Elections where a member has already withdrawn all of their benefits from the super system
Where a member had withdrawn all their benefits and they no longer had any benefits left anywhere in the super system (i.e. across all funds including defined benefit interests), the member could give the ATO a notice electing not to release the amount specified in the determination on the basis that the value of their benefits in super was nil. In this situation, the excess contributions were exempt from excess non-concessional contributions tax, however, the associated earnings amount was still calculated and taxed at marginal tax rates (less a 15% tax offset) in the member's assessable income for the year.
Excess non-concessional contributions tax applies where no valid election made
Where a member had non-concessional contributions that exceeded their non-concessional cap, and did not make a valid election to either withdraw the amount of excess, or the value of their benefits in super was nil, the contributions above their cap generally became excess non-concessional contributions and were subject to excess non-concessional contributions tax of 47%.
It was therefore critical, where possible, to ensure that clients made a valid election within 60 days of the date of their excess non-concessional contributions determination.
Members are notified of their liability to excess non-concessional contributions tax via an excess non-concessional contributions tax assessment, which is due within 21 days from when the assessment is issued. Amounts of unpaid excess non-concessional contributions tax after that time are subject to a general interest charge.
Compulsory release authority for excess non-concessional contributions tax amount
If an individual requests the Commissioner not release excess non-concessional contributions, it is mandatory to release the excess non-concessional contribution tax liability from the individual's superannuation interest. At the same time as an excess non-concessional contributions tax assessment is issued, the member will receive a compulsory release authority. The release authority will state the date and the amount of excess contributions tax the person is liable to pay.
The person must give the release authority for an amount of excess non-concessional contributions tax to their super provider within 21 days after the date of the release authority.
If the person does not have a super interest, they must pay the contributions tax out of their own pocket. If the person has a super interest, they do not have the option of paying excess non-concessional contributions tax out of their own pocket.
The Commissioner of Taxation may give the release authority directly to one or more super providers that hold a super interest (other than a defined benefit interest) for the person if any of the following occur:
- The person does not give the release authority to a super provider within 90 days after the date of the release authority.
- The total of the amounts (if any) paid by super providers in relation to the release authority falls short of the amount of the excess non-concessional contributions tax.
- The total of the values of every super interest (other than a defined benefit interest) held for the person by a super provider to which the release authority is given falls short of the amount of the excess non-concessional contributions tax stated in the release authority.
A super provider that has been given a release authority must pay to the person or the Commissioner of Taxation within 30 days (from 1 July 2018, must pay to the Commissioner of Taxation within 10 business days) after receiving the release authority the lesser of the following amounts:
- The amount of excess tax stated in the release authority.
- An amount specified by the taxpayer.
- The person's account balance.
The proportioning rule does not apply to a payment made under a release authority. Amounts from super or pensions may be released for the payment of amounts under a release authority.
Commissioner's discretion to reallocate excess contributions
The taxpayer may apply to the Commissioner of Taxation in the approved form for a determination that part or all of the excess contributions (concessional or non-concessional) 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 non-concessional contributions determination.
A determination to disregard or reallocate excess non-concessional contributions will only be issued where the taxpayer can demonstrate that special circumstances exist (i.e. that it was unjust, unreasonable or inappropriate to impose the tax consequences associated with excess non-concessional contributions).
Last modified: Wednesday, May 1, 2019