Excess Non - Concessional Contributions

Excess Non-Concessional Contributions from 1 July 2013

Individuals have the option to withdraw contributions made from 1 July 2013 that exceed their non-concessional contributions cap plus 85% of associated earnings. The individual member has only 60 days to make the election after being notified by the ATO. 

Associated earnings are calculated at the average GIC rate of interest for the year, and as if the contribution had been made on the 1 July of the tax year in which the contribution was made (even if the actual contribution was actually made on 30 June of the next calendar year).

The associated earnings rate is applied to the excess non-concessional contribution amount on a daily compounding basis for the length of the associated earnings period.

The associated earnings are included in the member’s assessable income in the year the contribution was made. 

The Superfund will be required to pay tax at the rate of 15% on the associated earnings.

A 15% non-refundable offset applies to the associated earnings.

Individuals who do not elect to withdraw their excess non-concessional contributions will continue to be subject to excess contribution tax at the top marginal tax rate plus Medicare levy on the amount of the excess, being 46.5% for 2013/2014, 49% for 2014/2017 and 47% since 1 July 2017.

Associated earnings rates 

Excess contributions from 1 July 2007 to 30 June 2013

Tax Rates

Excess non-concessional contributions are taxed at the rate of 46.5%.

Excess concessional contributions also count towards the non-concessional contributions cap. This means if your contributions in a financial year exceed both the concessional and non-concessional contributions caps you could end up paying 93% tax on the excess amount.

Unlike excess concessional contributions tax, the tax on excess contributions that exceed the non-concessional cap cannot be paid by the individual.  It must be paid by the superfund.

If a person inadvertently breaches the cap, the ATO may be able to reduce the amount of excess contributions subject to tax.  Refer to the link below for more details.
 

Superfund must reject

From 1 July 2007 the superfund must either reject an excessive non-concessional contribution or return the contribution to the member within 30 days of becoming aware of the breach.

However according to the ATO ID 2007/225 (see link below), the trustee is not required to return all or part of a contribution unless all or part of the contribution itself will cause the member to have excess non-concessional contributions for the income year.

The trustee is not required to aggregate the total of member contributions received for a person either within the fund or across other funds.  The rule applies only on a contribution by contribution basis, not a yearly basis or any other basis.  Therefore the member is responsible for keeping track of all contributions made during the year to ensure they do not exceed the cap, otherwise the penalties will be incurred.

If a superfund receives a contribution for a member who does not meet the relevant age and work test it must reject it or return it to the payer within 30 days of becoming aware of the breach.

In a SMSF, where all members are also trustees, the ‘ATO view’ is that the 30 day period for returning the contributions, runs from the date the excess contribution is made and not when the trustee first becomes aware of it.

Excess contributions relating to the transitional cap prior to 30 June 2007
 

Treatment of post-tax contributions in ‘excess’ of $1 million made since 10 May 2006:

> If made before 6 December 2006 – make an application to the ATO before 30/6/2007 to withdraw the funds without penalty.

> If made between 7 December 2006 and 30 June 2007 – you will be issued with an assessment for a tax liability of 46.5% of the excess contributions above $1 million.  You may be able to apply to the Commissioner of Taxation to exercise his discretion to disregard or reallocate the contributions to a different income year under certain circumstances.