Excess Concessional Contributions

Posted by Admin PWA on

Individuals are allowed to make concessional contributions to their superannuation fund, which are taxed at a lower rate than their regular income. However, there are limits to how much can be contributed each financial year. If an individual exceeds this limit, they may be subject to an excess concessional contributions charge (ECCC).

The concessional contributions cap for the 2022-2023 financial year is $27,500. If an individual exceeds this cap, they will be required to pay additional tax on the excess amount at their marginal tax rate, in addition to the regular tax on concessional contributions.

The ECCC is designed to discourage individuals from using superannuation as a tax avoidance scheme, and to ensure that everyone is contributing to their superannuation fund in a fair and consistent manner.

If an individual exceeds the concessional contributions cap, they will receive a notice of assessment from the ATO outlining the amount of the excess contribution and the amount of the ECCC. The excess contribution can be withdrawn from the superannuation fund, although this may also be subject to additional tax.

It’s important to note that there are some circumstances where an individual may be able to avoid or reduce the ECCC, such as if they have unused concessional contributions from previous years or if they meet certain criteria for releasing excess contributions.

In summary, excess concessional contributions into super can have significant tax implications for individuals. It’s important to carefully monitor contributions to ensure that they remain within the concessional contributions cap.

If you require more assistance on this matter, please contact our office at 03 9973 5905.

 

 

Carried Forward Concessional Contributions

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Carried forward concessional contributions can be a useful tool for individuals who want to boost their superannuation savings. Individuals can make concessional contributions up to a certain limit each financial year, with the current limit set at $27,500 for the 2021-22 financial year. Concessional contributions are taxed at a lower rate of 15% compared to an individual’s marginal tax rate.

However, if an individual does not use up their entire concessional contributions cap in a financial year, they can carry forward the unused amount for up to five years. This means that they can make additional concessional contributions in future years to catch up on any unused amounts from previous years.

For example, if John had a concessional contributions cap of $27,500 in the 2021-22 financial year but only made concessional contributions of $20,000, he could carry forward the remaining $7,500 and add it to his concessional contributions cap for the following year. If John makes concessional contributions of $35,000 in the 2022-23 financial year, he would have effectively used up his concessional contributions cap for both years ($20,000 + $27,500 + $7,500).

It’s important to note that there are eligibility requirements and restrictions around carried forward concessional contributions. Only individuals with a total superannuation balance of less than $500,000 at the end of the previous financial year are eligible to carry forward unused concessional contributions. Additionally, the unused amounts can only be carried forward for up to five years and must be used before they expire.

In conclusion, carried forward concessional contributions can be a useful strategy for individuals who want to boost their superannuation savings and take advantage of unused concessional contributions from previous years. If you require more assistance on this matter, please contact our office at 03 9973 5905.

contributions

Super concessional contributions: beware of going over the limit

Posted by admin on

If you are either an employee or a self-employed person and you top up your super by making deductible contributions, you need to be aware of not breaching the annual $25,000 concessional (before-tax) contribution cap. If that happens, your tax bill will increase, not to mention the administrative inconvenience you may face.

As an employee, your employer is obliged to pay you the 9.5% of Superannuation Guarantee Contributions (SGC), which count as concessional contributions. So if you are a high-income earner, especially, with more than one employer (eg, a doctor working for more than one hospital) you could risk going over the limit.

“You could also be in danger of reaching the cap if you, as an employee, have salary sacrifice arrangements already in place from last year when the annual concessional cap was higher ($35,000 or $30,000 depending on your age).”

Given that the annual cap was lowered to $25,000 (regardless of age) from this 2017–2018 year, it is advisable to review your current arrangements and adjust your contribution amounts so you don’t inadvertently contravene the new lower cap.

What exactly are concessional contributions?
Concessional contributions are those made to a super fund out of an individual’s pre-tax income and are taxed at 15%.

Generally, concessional contributions include:

  • Employer’s super guarantee contributions, that is, the compulsory 9.5% of your salary that your employer puts into your super.
  • Salary sacrifice payments made to your super fund by entering into a salary sacrifice agreement with your employer.
  • Personal contributions, for which a deduction has been claimed, typically, if you are self-employed.
  • Insurance premiums and administration fees when your employer paid those costs to your super fund on your behalf, rather than these being deducted direct from your super fund.

What happens if the limit is breached?

If you go over the $25,000 concessional contributions cap, whether deliberately or unintentionally, the ATO will send you an excess concessional contributions determination, which indicates that:

  • The excess contributions will be included in your assessable income and you will be taxed at your marginal tax rate (plus Medicare levy).
  • You will receive a non-refundable tax offset of 15% for your excess concessional contributions. This amount acknowledges the tax already paid by the super fund on those contributions. (Remember: concessional contributions are taxed at 15% when received by the super fund.)

You will need to pay an “excess concessional contributions charge” (ECC charge) at an approximate rate of 4.70% (the rate is updated quarterly). The ECC charge period is calculated from the first day of the income year to which the charge relates, ending on the day before the day on which payment is due under the first notice of assessment.

Making the election

After receiving the excess concessional contributions determination, you can choose to pay the tax bill from your own money, or use a release authority issued by the ATO to pay the debt using you superannuation money.

However, before paying the excess, contact us, or your superannuation fund, to confirm that there was an excess of contributions and that this was not a mistake. There could also be a narrow possibility of challenging the excess based on “special circumstances”, but do speak to us first to evaluate your position.

The release authority allows you to use up to 85% of the excess concessional contributions from the superannuation fund to cover the additional personal tax liability. The election to release must be made in the approved form within 21 days of receiving the excess concessional contributions determination.

Once you send the election form to the ATO, it will issue the nominated super fund with an excess concessional contributions release authority. The super fund will then be required to pay the amount to be released to the ATO within seven days. Due to the short seven-day timeframe, trustees of self-managed super funds (SMSFs) should ensure that they have sufficient cash to make the expected payment on time. Note that administrative penalties apply for failing to make a payment to the ATO.

Talk to us first

There are various practical things you can do to avoid paying additional charges. However, talk to us first before making any decision about your super.