The refund option for excess superannuation concessional contributions up to $10,000 is now law following Royal Assent to the Tax Laws Amendment (2012 Measures No 1) Bill 2012.
As a result of the new law, eligible individuals will have a once-only option to have 85% of their excess concessional contributions up to $10,000 released from their superannuation fund to the Commissioner and assessed as income for the financial year in which the contribution was made. The individual will effectively pay tax on refunded excess concessional contributions at their marginal tax rate (less a 15% refundable tax offset for the tax already paid by the fund on the contributions), rather than the potentially higher excess contributions tax (ECT) of 31.5% (in addition to the 15% contributions tax for the fund).
While the refund option will provide some welcome relief in limited situations, it also presents another layer of complexity with further pitfalls for unsuspecting taxpayers.
Eligibility for refund option
The new refund option will only be available for excess concessional contributions in respect of 2011-12 or later years, and only for the first year. However, it will not provide any relief for taxpayers who exceed the concessional cap by more than $10,000 or for breaches before 1 July 2011. To be eligible, the individual must also lodge an income tax return for the relevant income year within 12 months of the end of that year.
The Commissioner will provide eligible individuals with a choice, via a notice of offer, to have the excess concessional contributions released from their superannuation fund to the Commissioner and assessed as income at their marginal tax rate. The Commissioner is expected to provide these notices of offer at a similar time to the current letters he sends to individuals prior to making an ECT assessment.
Access to tax credit may be denied
Once the choice to refund is received from a taxpayer, the Commissioner will provide the taxpayer's superannuation fund with a compulsory release authority for 85% of the amount of excess concessional contributions. If a superannuation fund pays an amount to the Commissioner in accordance with a release authority, the taxpayer is entitled to a tax credit equal to that amount.
However, a superannuation fund will not be required to comply with a compulsory release authority if:
- the superannuation interests held by a fund is less than the release authority amount, or
- if the interest is a defined benefit interest, or
- if the interest is supporting a superannuation income stream.
As a result, the release authority exemptions will operate to deny the taxpayer access to a tax credit. In addition, the release authority exemptions will not affect the Commissioner's refund determination which will remain on foot to include the excess concessional contributions in the taxpayer's assessable income.
Therefore, a taxpayer will need to consider whether she or he may need to access the refund option on any excess concessional contributions before commencing a superannuation income stream from that superannuation interest. Once an income stream is commenced, it will effectively prevent the taxpayer from receiving a tax credit (via a release authority on that interest) if he or she accepts a refund offer for excess concessional contributions.
Comprehensive details on the refund option for excess concessional contributions are explained in Thomson Reuters online editions of the Australian Tax Handbook and Australian Superannuation Handbook. For more information, visit our website.
Source: This article was first published in Thomson Reuters' Weekly Tax Bulletin. To subscribe to Weekly Tax Bulletin, or for more information, please:
- see http://www.thomsonreuters.com.au/catalogue/productdetails.asp?id=1429; or
- contact Thomson Reuters on 1300 304 195 or at LTA.Service@thomsonreuters.com
More Cleardocs information on related topics
You can read earlier Clearlaw articles on a wide range of SMSF topics here.
Order SMSF related document packages
- Set up an SMSF
- Update an SMSF deed
- Set up an SMSF pension
- Arrange SMSF borrowing documents:
- Set up an SMSF corporate trustee
- SMSF Death Benefit Nomination – binding or non binding
- SMSF Death Benefit Agreement – binding and permanent