Withdrawal of excess concessional contributions in limited circumstances
Members will have the option of withdrawing up to $10,000 of excess concessional contributions from their superannuation fund under new measures announced in the 2011/2012 Federal Budget handed down by the government on 10 May 2011.
The excess concessional contribution will instead be taxed in the hands of the member at their marginal rates, rather than at the penalty rates. The penalty rate effectively taxes excess concessional contributions at 46.5% instead of at the concessional rate of 15% that applies to concessional contributions made to complying superannuation funds if the contributions do not breach the concessional contribution caps of $25,000 and $50,000 respectively.
Another benefit of this measure is that excess concessional contribution will not count against the members non-concessional contribution cap. This means that if a member has maximised the contributions permitted under their non-concessional cap, the excess concessional contribution will not count against into their non-concessional contribution cap and result in additional tax of 46.5%, which translates into an effective tax rate of 93%.
This limited excess contributions tax relief is complimented by the increase in the concessional contribution cap to $50,000 per annum for members’ age 50 or more with total superannuation benefits (across all superannuation funds) of less than $500,000, which applies from 1 July 2012.
This measure will effectively extend the temporary increase of the concessional contributions cap to $50,000 for members age 50 or more that was due to end on 30 June 2012, albeit with further restrictions around who is eligible to access the higher concessional contribution cap.
However, it is still unclear how the government will calculate the $500,000 superannuation benefit limit and what additional levels of complexity this measure will add to the superannuation system.
The fine print - refunding excess concessional contributions
Importantly, the withdrawal of excess concessional contributions that exceed the concessional contributions cap by up to $10,000 only applies:
- the first time the member breaches the concessional contribution cap from the 2012 income year onwards;
- to excess concessional contributions made in the 2012 income year and later years; and
- is not indexed.
Concessional contributions include mandatory and voluntary employer contributions, salary sacrificed amounts and personal deductible contributions.
Missing pieces of the puzzle
While the budget announcement goes some way to addressing the harsh impact of the excess contributions tax legislation, the proposed amendments will not address inadvertent breaches of the non-concessional contribution cap.
It is unclear at this stage whether members will be permitted to withdraw mandatory employer superannuation guarantee contributions.
For example, where a director sits on a number of company boards and the combined mandatory employer contributions pushes the director over their concessional contribution cap by less than $10,000, in our view it is unlikely that the government will permit the director to withdraw the excess under the proposed amendments to the excess contributions tax regime. Allowing a director to withdraw mandatory contributions without further amendment to the superannuation law would result in employers failing to comply with their obligations under the Superannuation Guarantee (Administration) Act 1992 and therefore, becoming liable to pay the superannuation guarantee charge.
It is also unclear whether an employee will be permitted to withdraw salary sacrifice contributions that exceed the contributions cap by less than $10,000. Arguably an employee should be able to elect to have this amount withdrawn from their superannuation fund and taxed in their own hand.
The government has indicated in Media Release No 069 that they will consult with the superannuation industry on the implementation of this measure.
Costs of implementing the changes
Treasury forecasts that this measure will reduce revenue by $19.9 million from 1 July 2011 to 30 June 2015 and cost the Australian Taxation Office $15.6 million to administer.