Excess Non-Concessional Contributions Tax Reform

Treasury exposure draft legislation released on 10 October gives effect to the Budget measure that allows individuals to withdraw superannuation contributions made in excess of the non-concessional contributions cap, as well as the earnings on these contributions, in order to avoid excess contributions tax. Key details of the proposal include:

  • Application to excess non-concessional contributions made in the 2013/14 financial year and later years.
  • The member can elect to have the excess amount, together with any associated earnings, released from the fund. The earnings will be calculated from 1 July of the financial year of contribution up until the day the Commissioner makes his determination.
  • The payment (refund) from the fund will be treated as a lump sum super payment and will be non-assessable non-exempt (NANE) income. However, the associated earnings component of the payment would be included in the individual’s assessable income.
  • The earnings will be calculated using an average of the General Interest Charge (GIC) rate for each quarter of the financial year. The interest will compound on a daily basis. For the FY2014 year, the rate would average out to be 9.66%.
  • Where the excess contributions are released from the fund, excess non-concessional contributions tax will not be imposed.
  • If only part of the excess contributions are released then excess contributions tax will apply to the balance remaining in the fund(s).
  • Excess non-concessional contributions tax will also not be imposed where the member’s remaining superannuation interest is nil – for instance where the member has withdrawn all their super benefits. However, the full amount of the associated earnings will still be included as assessable income for the individual.
  • Excess non-concessional contributions tax will be imposed on amounts that are not released from the fund.
  • The current method for working out non-concessional contribution caps will still apply.
  • The Commissioner will still have the discretion to disregard or re-allocate non-concessional contributions, and excess contributions tax will not be imposed on amounts that are disregarded.