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Contributions caps and taxation of contributions

Excess concessional contributions

Section: 5.9

Excess concessional contributions

Excess concessional contributions made from 1 July 2013 are effectively taxed at a client's marginal tax rate. This is achieved through:

  • the 15% tax paid by the super fund
  • any excess concessional contributions being included in the client's assessable income
  • the client receiving a non-refundable excess concessional contributions tax offset equal to 15% of their excess concessional contributions
  • the client being subject to an excess concessional contributions interest charge (see below).
Example:

Frank (subject to a MTR of 34.5%) makes excess concessional contributions of $20,000. Firstly, these contributions will be assessable income of his super fund and be taxed at up to 15% ($3,000). Secondly, $20,000 will be added to Frank's assessable income for the financial year ($6,900) but he will receive a 15% tax offset ($3,000). Frank's excess concessional contributions have effectively been subject to a maximum of 34.5% (his MTR). This excludes any excess concessional contributions interest charge that may be payable.

Clients can elect to have up to 85% of their excess concessional contributions made from super. See section Electing to release excess concessional contributions below for further details.

Excess concessional contributions charge

Under the new rules, an 'excess concessional contributions' charge applies. This charge (essentially an interest charge) recognises the fact that a client making excess concessional contributions can avoid these amounts being taken into account under the PAYG rules and therefore pay tax later than would otherwise be the case.

The charge:

  • is payable with reference to the amount of a client's income tax liability for the financial year that is attributable to excess concessional contributions.
  • is calculated from the start of the financial year in which the excess contributions are made until the day payment is due under the client's first notice of assessment for that financial year.
  • is calculated and compounded daily at a rate equal to the RBA-published 90 day bank accepted bill rate plus 3%
  • becomes payable when the client is liable to pay income tax attributable to the excess concessional contributions.
Example - excess concessional contributions charge

Joanne exceeded her concessional contribution cap by $10,000 in the 2018/19 financial year. She is on marginal tax rate of 37% plus 2% Medicare levy.

The excess concessional contribution charge is applied on the following tax liability:

Tax assessed on excess CC: $3,900 ($10,000 x 39%) less tax offset on excess: $1,500 ($10,000 x 15%)

The ECC charge is applied on the amount of tax liability of $2,400.

The ECC charge is calculated by the ATO and is paid from the start of the financial year until first income tax assessment is due. The shortfall interest charge is then payable from that date until the date the extra income tax liability (as result of the excess concessional contribution) is due.

If an amount of ECC charge and shortfall interest charge remains unpaid after the time it is due, the individual will also be liable to pay the general interest charge (GIC) on the unpaid amount for each day in the period from when the amount was due until it is paid. Refer to the ATO website for current GIC rates. As a guide, the annualised GIC rate for the April to June quarter of the 2017-18 financial year was 8.77%.

Last modified: Tuesday, April 30, 2019