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Non-concessional contributions

Excess non-concessional contributions

Section: 5.6

When a member exceeds the non-concessional contributions cap in a financial year, the member must lodge a tax return for that year, and there is a chance they may pay extra tax. The Commissioner will provide the member two options on how their excess non-concessional contributions will be taxed.

  • the member can elect to withdraw excess non-concessional contributions plus 85% of the associated earnings on the excess contributions and tax is payable on the associated earnings, or
  • the member is liable to pay excess-concessional contributions tax on the excess contributions.

Election to withdraw excess non-concessional contributions

In order to avoid liability to excess non-concessional contributions tax, a member can elect to withdraw excess non-concessional contributions made on or after 1 July 2013 plus 85% of the associated earnings on the excess contributions. The full amount of the associated earnings is taxed at the members marginal tax rate, but the member is entitled to a non-refundable tax offset equal to 15% of the associated earnings that are included in their assessable income.

Excess non-concessional contributions tax is not imposed on excess non-concessional contributions if they are withdrawn from the superannuation fund, but may be imposed on any excess contributions that remain in the fund.

The ATO will issue a release authority to the super funds nominated by the member and the super fund will pay this amount directly to the ATO.

When a member completes the excess non-concessional contributions election form:

  • ATO will send a release authority to the super funds nominated by the member. They pay an amount to the ATO in total equal to their excess non-concessional contributions amounts and 85% of the associated earnings amount - from 1 July 2018 super funds have ten working days to action this.
  • ATO will amend a member's income tax assessment by including the full amount of the associated earnings as assessable income and providing a non-refundable tax offset equal to 15% of these associated earnings - ATO will send a member a notice of amended assessment, which may require a member to pay an amount to the ATO.
  • The funds released to the ATO will be used to offset any ATO or Commonwealth debts against the member may have and pay any remaining balance back to the member.

Liability to excess non-concessional contributions tax

Excess non-concessional contributions tax may be payable by a member who has excess non-concessional contributions in a year. The tax is payable on the excess contributions at the rate of 47%.

Example: Working out how excess non-concessional contributions are taxed

In 2017-18, Larry makes a non-concessional contributions and exceeds his non-concessional contributions cap by $100,000. Larry already received his notice tax assessment for 2017-18 with taxable income of $140,000.

ATO will determined the associated earnings amount is $19,000 and provided Larry an excess non-concessional contributions determination stating:

  • an excess contributions amount of $100,000
  • an associated earnings amount of $19,000
  • a total release amount of $116,150 ($100,000 plus 85% of the associated earnings amount of $19,000

Larry has 60 days from the determination letter issue date to make an election and notify the ATO.

Larry chooses option 1 - release amounts from super

Larry decides to release $116,150 from his super and have the associated earnings included in his assessable income. Larry does this by logging onto myGov and completes the excess non-concessional contributions election form, choosing option 1 and nominating the super fund he wans the amount released from.

After receiving the valid election, ATO will add Larry's associated earnings amount of $19,000 to his assessment with:

  • amended taxable income of $159,000 ($140,000 plus $19,000)
  • a non-refundable tax offset of $2,850 (15% of $19,000)
  • an amount payable of $4,180

The ATO will also send a super fund a release authority requiring the fund to release $116,150 from his super.

The super fund pays ATO the $116,150 in compliance with the release authority. The released amount will offset against any outstanding tax or other Australian Government debts before any remaining balance is refunded to Larry.

Larry chooses option 2 - pay excess non-concessional contributions tax

Larry logs onto his myGov account and completes the excess non-concessional contributions election form, choosing option 2 to pay excess non-concessional contributions tax on $100,000. Larry also notifies the ATO which fund he would like a release authority issued to in order to pay his tax liability.

Larry is issued by the ATO an excess non-concessional contribution tax assessment for $47,000 ($47% of $100,000). An excess non-concessional contributions tax release authority is sent to the super fund by the ATO to release $47,000 from his super. The super fund pays the $47,000 to the ATO in compliance with the release authority. The released amount will be offset against Larry's debt.

Larry does not choose any option

If the ATO doesn't receive a 'valid election form' from Larry within 60 days of the determination letter issue date. Larry will automatically be defaulted into option 1 and follow the process of releasing the excess non-concessional contributions from his super.

Larry's associated earnings amount of $19,000 is added to his assessable income. A notice of amended income tax assessment is sent to Larry with the following:

  • an amended taxable income of $159,000 ($140,000 plus $19,000)
  • a non-refundable tax-offset of $2,850 (15% of $19,000)
  • an amount payable of $4,180

ATO will also send a release authority to Larry's fund requiring the fund to release $116,150 from his super.  The super fund pays $116,150 to the ATO in compliance with the release authority. The released amount will be offset against any outstanding tax or other Australian Government debts before any remaining balance is refunded to Larry.

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

Last modified: Tuesday, September 15, 2020