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Excess superannuation contributions tax is payable on contributions that exceed the “non-concessional contributions cap” or the “concessional contributions cap”
The rate of excess contributions tax that is payable on excess contributions is dependent on the type of contribution that was being made. Your individual taxable income will also affect the level of excess contributions tax payable.
The purpose of excess contributions tax is not designed to penalise people for exceeding the relevant contribution caps, but rather to ensure that any excess contributions are taxed at the rate they would have otherwise been taxed had the excess contributions not been made.
In saying that, in some situations the excess contributions tax on non-concessional contributions can be taxed at a rate that is higher than an individual’s marginal tax rate.
A concessional contribution is a contribution made or received into a Superannuation fund that the contributor claimed a tax deduction for. The current concessional contribution cap is $25,000 per person, per financial year.
The new rules also allow individuals with superannuation balances to carry forward unused concessional contribution caps for up to 5 years from 1 July 2018, which can be utilised from 1 July 2019.
Keep in mind that people aged over 65 will need to meet the Superannuation work test to make or receive concessional contributions.
The ordinary contributions tax payable on concessional contributions is 15% of the amount contributed. Please note, there is an additional 15% contributions tax payable by high income earners and a low income Superannuation contribution designed to offset the standard contributions tax
A non-concessional contribution is an after-tax contribution made into a Superannuation account. Non-concessional contributions are generally made from an individual’s personal bank account into Superannuation for the purpose of saving towards retirement in a tax effective manner.
Superannuation can be tax-effective as all earnings on investments within are taxed at a maximum of 15%, as opposed to an individual’s marginal tax rate. The current non concessional contribution cap is $100,000 per person, per financial year.
Further, an individual with a Superannuation balance of $1.6 million or more will not be able to make any additional non-concessional contributions. There is also the ability to bring forward up to 2 additional years of the non-concessional cap for individuals under age 65.
Transitional rules apply to the non-concessional contribution ‘bring-forward’ rule in respect of the significant reduction in the cap from 1 July 2017.
Non-concessional contributions do not incur contributions tax as they are after-tax contributions and tax has already been paid on this amount prior.
Exceeding the concessional contribution cap will result in the excess being treated as excess contributions. Excess contributions are included in an individual’s assessable income and taxed at their personal marginal tax rate. An excess concessional contribution charge also applies.
As these excess contributions are taxed at an individual’s marginal tax rate, a 15% non-refundable tax offset is received in order to reimburse for the 15% contributions tax that was paid ensuring the individual is not over-taxed.
Up to 85% of the excess contributions are able to be released from Superannuation to assist with the additional personal income tax payable. Any amount released is not counted towards a persons non-concessional contribution cap.
Excess contributions that are not released will count an individual’s non-concessional contribution cap. This could result in inadvertently exceeding the non-concessional contribution cap.
Exceeding the non-concessional contribution cap will result in the excess being treated as “excess contributions”.
The excess non-concessional contributions can be withdrawn from Superannuation, plus 85% of any earnings on that amount.
The earnings relevant to the excess contributions are included in an individual’s assessable income and taxed at their marginal tax rate, minus a 15% tax offset designed to rebate the tax on those earnings.
Excess contributions that are not withdrawn from Superannuation are taxed at the highest Marginal Tax Rate (MTR), plus Medicare (currently 45%, plus 2% Medicare Levy) within the Super fund.