Contributions caps and taxation of contributions
Taxation of contributions
Contributions may only be made to accumulation accounts. Contributions cannot be made to existing pensions. The tax treatment of contributions in the accumulation phase is summarised in the table below.
|Contribution type||Within cap||Exceeding cap||Effectively adds to:|
|Concessional||15%||Marginal Tax Rate||Taxable component|
* An additional 15% tax may apply to high income earners. Refer to section 5.9 for more information.
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).
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 1 July 2013 released from super.
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.
- 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.
Excess concessional contributions made between 1 July 2007 and 30 June 2013
Excess concessional contributions made between 1 July 2007 and 30 June 2013 were taxed at 31.5% to the individual member (in addition to the 15% tax paid by
the super fund).
Excess concessional contributions made during this time also counted toward the non-concessional cap. If the excess concessional contribution also exceeded
the non-concessional cap, it was taxed again at 46.5%. Such a contribution was therefore taxed at 93% in total (15% + 31.5% + 46.5%).
Note that a where a client has excess concessional contributions of $10,000 or less or the 2011-12 or 2012-13 financial year, they may be able to have these excess concessional contributions refunded.
Excess non-concessional contributions
Excess non-concessional contributions are taxed at 49% to individuals.
However, where a member has made contributions that exceed their non-concessional cap from 1 July 2013, they can generally elect to withdraw the excess (plus earnings) rather than paying excess non-concessional contributions tax.
Election to withdraw non-concessional contributions above non-concessional cap
Where a member makes non-concessional contributions above their non-concessional cap from 1 July 2013, they will receive an excess non-concessional contributions determination from the ATO. They may elect (within 60 days of receiving the determination) to withdraw the amount of non-concessional contributions above their cap, plus 85% of a deemed earnings amount. Only a full election can be made, so for example, a member cannot elect to withdraw only part of the contributions made above their non-concessional cap.
Where an election is made, the withdrawn contribution is not subject to tax, however 100% of the deemed earnings amount will be assessable income of the member personally (although a 15% tax offset applies to recognise that tax would have been paid on the actual earnings made on the contribution while it was in the super fund).
Where a member has exceeded their non-concessional cap but has since withdrawn all of their super benefits and they have no benefits left anywhere in the super system, they can elect not to withdraw contributions over their cap on the basis that the value of their benefits in super is Nil. Where this occurs, they can still take advantage of the above rules to avoid excess non-concessional contributions tax, and will be assessed on a deemed earnings amount, however, they are not required to withdraw an amount from super.
Calculation of deemed earnings amount
The deemed earnings amount is calculated by multiplying the amount of the excess non-concessional contributions by the General Interest Charge (GIC) rate for each of the quarters of the financial year in which the excess contributions were made (the GIC is calculated and compounds on a daily basis - refer to the ATO website for current rates). As a guide, the average GIC rate for the four quarters of the 2015-16 financial year was 9.20%.
It is also important to note that the period for which the deemed earnings amount is calculated starts on 1 July in the year the contributions are made and ends on the day the Commissioner issues the excess non-concessional contribution determination.
For example, a member made a non-concessional contribution that exceeded their non-concessional cap on 1 May 2016. The ATO then issued the excess non-concessional contributions determination for 2015-16 on 1 December 2016. In this case, the deemed earnings amount would be calculated based on the period from 1 July 2015 until 1 December 2016.
Tax treatment of amounts withdrawn
Where a member makes the above election, 100% of the deemed earnings amount is assessable income (with a 15% tax offset applying). The withdrawal made as a result of the election is non-assessable non-exempt income.
The amount withdrawn is a superannuation benefit payment, however, the proportioning rules do not apply to the payment (ie the amount paid will not be split into tax-free and taxable components), meaning the trustee is not required to deduct the amount withdrawn from the member's tax free component where it was paid from a superannuation interest in the accumulation phase. As a result, such payments could effectively result in a reduction of the member's taxable rather than tax-free component.
CGT cap amounts
Contributions which count toward the CGT cap (see section 6) do not incur additional tax if within the lifetime CGT cap. Amounts beyond the CGT cap amount will be either concessional or non-concessional contributions and may affect a person's total contributions that count toward either the concessional or non-concessional cap.
No-TFN contributions tax
Where a TFN is not attached to an individual's account, any contributions that are included in the assessable income of the fund (generally concessional contributions - will be subject to 34% no-TFN contributions tax.
No-TFN contributions tax is payable by the super fund, in addition to any other tax paid on the contribution.
Where a TFN is subsequently provided within a four-year period (including the financial year the contribution was made), a super fund or RSA provider is entitled to claim a tax offset for the amount of tax paid on the no-TFN contributions income in the most recent three income years before the current year.
Note: Member concessional contributions (ie personal deductible contributions) must be refunded if no TFN is provided (see section 2.11). However, contributions of less that $1,000 in an income year to an account that existed prior to 1 July 2007 are not subject to no-TFN contributions tax.
Last modified: Wednesday, January 10, 2018