On 19 June 2013 the Minister for Financial Services and Superannuation introduced the Tax Laws Amendment (Fairer Taxation of Excess Concessional Contributions) Bill 2013 (the amending Bill), which will amend the ITAA 1997 and the TAA 1953 in relation to the treatment of individuals with excess concessional contributions. The amendments will also allow individuals to elect to release an amount of these excess concessional contributions from their superannuation. Any released amounts will proportionately reduce their non-concessional contributions.
A related Bill, the Superannuation (Excess Concessional Contributions Charge) Bill 2013, imposes a charge to ensure that taxpayers who have concessional contributions in excess of their annual cap do not receive an advantage compared to taxpayers who have not exceeded their annual cap.
These amendments apply to the 2013-2014 income year (and the corresponding financial year) and later income (and financial) years.
The amending Bill repeals the excess contributions tax in relation to excess concessional contributions and instead provides for excess concessional contributions to be included in an individual’s assessable income and subject to a charge to account for the deferral of tax. This charge is imposed by the Superannuation (Excess Concessional Contributions Charge) Bill 2013.
In more detail, the amending Bill will make the following amendments:
- Excess concessional contributions are included in an individual’s assessable income and taxed at his or her marginal tax rate. They are not subject to excess concessional contributions tax.
- An individual must pay excess concessional contributions charge on the increase in his or her tax liability that arises as a result of having excess concessional contributions for the relevant financial year. If applicable, this charge is subject to shortfall interest charge and general interest charge in the same way as the income tax liability to which the charge relates.
- An individual is entitled to an offset equal to 15% of the excess concessional contributions. The offset is not refundable.
- Individuals are entitled to elect to have up to 85% of their excess concessional contributions for a financial year released from superannuation.
- Individuals’ non-concessional contributions include their excess concessional contributions. An individual’s non-concessional contributions are reduced by 100/85 of the amount of any excess concessional contributions released from superannuation.
Excess concessional contributions charge
The Superannuation (Excess Concessional Contributions Charge) Bill 2013 will impose an excess concessional contributions charge on individuals with excess concessional contributions. The charge is payable on the amount of an individual’s income tax liability for the income year that is attributable to the individual having excess concessional contributions. In determining this amount, it is necessary to take into account both the increase in the individual’s income tax liability due to the inclusion of their excess concessional contributions and the reduction in their tax liability due to the availability of the excess concessional contributions tax offset.
The excess concessional contributions charge begins to apply on the first day of the income year to which the excess concessional contributions are attributable. It ceases to apply on the day prior to the date on which a payment is due under an individual’s first notice of assessment for the year (or would be due if the individual has no liability for a year).
The charge is payable at the same rate as the shortfall interest charge (SIC). It is not payable until the Commissioner has provided notice of their excess concessional contributions charge for the income year.
If a taxpayer has excess concessional contributions in a financial year the Commissioner must make a determination identifying the amount of these contributions and the amount of the excess contributions charge.
Election to release excess concessional contributions
Upon receipt of a notice of excess concessional contributions determination, an individual is entitled to elect to release up to 85% of the amount of the excess concessional contributions for that financial year from his or her superannuation. An amount released as a result of this election is not assessable income or exempt income.