From mid-October 2018, the ATO has started issuing excess concessional contributions (ECC) determinations for the 2017–2018 financial year. At the Superannuation Administration Stakeholders Group (SASG) meeting on 12 September 2018, the ATO said super funds should prepare for an influx of engagement and queries from members who receive these ECC determinations in relation to contributions above the $25,000 concessional cap for 2017–2018.
A taxpayer may also receive an amended income tax return assessment together with the ECC determination. This is because any excess concessional contributions are included in the taxpayer’s assessable income for the corresponding financial year (and subject to an interest charge). The taxpayer is also entitled to a 15% tax offset for the tax already paid by the super fund.
A taxpayer has 60 days from receiving an ECC determination to elect to release up to 85% of their excess concessional contributions from their super fund. However, they should first ensure that their super fund has correctly reported their contributions to the ATO before making an irrevocable election to withdraw any excess contributions.
Upon receipt of a valid election to release, the ATO will provide a release authority to the taxpayer’s relevant super fund requiring the amount specified to be paid to the ATO. The taxpayer will receive a credit equal to the amount released to the ATO. The ATO will use any money released from the individual’s super funds to first pay any tax or government debts before refunding any remaining balance to the individual. Accordingly, most taxpayers (below the top marginal rate) should have no tax debt on the released excess concessional contributions included in their assessable income.
Non-concessional contributions determinations
The ATO also started issuing excess non-concessional contributions (ENCC) determinations for 2017–2018 from mid-to-late October 2018. The non-concessional cap from 2017–2018 is $100,000 (or $300,000 over three years for those under 65), provided that they have a total superannuation balance of less than $1.6 million at 30 June of the prior year.
Taxpayers who exceed the non-concessional cap for the year and receive an ENCC determination can elect within 60 days to withdraw the excess non-concessional contributions (plus 85% of the associated earnings) from their super fund. The full amount of the earnings (100%) are then included in the taxpayer’s assessable income (and subject to a 15% tax offset). If an individual does not withdraw the excess contributions, they will be taxed at the top marginal tax rate (plus Medicare levy).
The ATO has previously suggested that for “most people” who exceed the non-concessional cap it is “easiest to do nothing”. If a taxpayer does not make an irrevocable election within 60 days of receiving an ENCC determination, the ATO says it will ask the taxpayer’s super funds to release and send excess amounts to the ATO. It will also amend the taxpayer’s income tax assessment to include the associated earnings, which will be taxed at the individual’s marginal tax rate (plus Medicare levy). While the ATO suggests that it is “easiest to do nothing” for “most people” who exceed the non-concessional cap, each taxpayer needs to consider the tax implications for their own circumstances.