Exceeding concessional contributions caps *
Exceeding non-concessional contributions caps *
Your excess concessional contributions are counted as personal assessable income and taxed at your marginal tax rate. You will receive a tax offset to reflect the 15% tax already paid on these contributions by the super fund.
You can elect to withdraw the excess concessional contributions from your fund. If you elect not to, your excess concessional contributions will also count towards your non-concessional contribution cap.
Excess non-concessional contributions are taxed at 45% + Medicare (2%).
But before the ATO applies this tax, they will give you an opportunity to remove the excess non-concessional contributions (plus a notional amount to reflect investment earnings) from super. If you take this option, you will only pay tax on the notional earnings amount.
The notional earnings will be taxed just like normal personal income, less a 15% tax offset to reflect the fact that theoretically, the super fund has already paid 15% on its earnings.
* These rules have changed several times in recent years so this treatment will not necessarily apply to excess contributions you have made in the past.
What is the process for electing to withdraw the excess contributions?
The process for withdrawing the excess contributions is somewhat convoluted but it needs to be followed precisely to ensure payments from super are not taken illegally and taxes are minimised.
- Your superannuation fund lodges its tax return for the relevant tax year (20XX) in the 20X+ financial year.
- The ATO uses the data in the tax return to identify that you have exceeded your contribution caps.
- The ATO sends you a notice identifying the excess contributions. If you have a myGov account, the ATO may send this correspondence electronically.
- If the amount of the excess contributions is correct, what happens next depends on whether or not the excess contribution was a concessional contribution or a non-concessional contribution.
Process for excess concessional contributions
|Pay tax personally and leave all super in the member's account
|Refund excess concessional contributions
If you decide to pay the additional tax out of your own money (and leave the excess concessional contributions in your super account), you should follow the payment directions provided in the ATO correspondence. Payment of any extra tax should be made directly from your personal bank account and no further action is required by the super fund.
Members who do nothing will effectively default to this option - ie, they will miss the opportunity to release any money from their super fund and will be required to pay the tax personally.
If you decide to have the excess concessional contributions refunded out of your super fund, you will need to make an election.
You can make this election:
This choice is irrevocable and must be made within 60 days.
In the meantime, the super fund should not do any of the following:
In due course, the ATO will send a request (called a "release authority") to the super fund that directs the super fund to pay some of your super to the ATO. (Note that the refund is paid to the ATO first, not directly to you.)
The release authority will be sent electronically to the super fund via its ESA (Electronic Service Address). The payment must be made (and the ATO notified via the required electronic systems) within 10 days.
Once the ATO has received the money, they will deduct the tax owed on the excess contributions, as well as any other personal tax debts you have, and give you whatever is left like a tax refund.
Process for excess non-concessional contributions
The process for excess non-concessional contributions is very different in that the ATO will assume you want to have your excess contributions (and notional earnings amount) refunded in order to avoid the very harsh tax treatment of excess non-concessional contributions. That means anyone who would rather pay the tax (47% on the excess non-concessional contributions) needs to take action to avoid having the contributions refunded.
|The default process
|Alternative actions that can be taken
The ATO will automatically issue a release authority to the fund 60 days after the initial notification of the excess. This directs the fund to refund certain money to the ATO.
As for excess concessional contributions, it will be sent via the fund's ESA and payment must be paid (and the ATO notified via the required electronic systems) within 10 days.
One again, the ATO will calculate and deduct additional taxes owing (this time, tax on the notional earnings amount, less a 15% offset) and return the amount leftover to you.
If you wish to:
you must make an election within 60 days of the initial notice about your excess.
The Heffron Super Companion provides more information about contribution caps for SMSF professionals. We cover if your client might exceed them and provide a handy flowchart showing all the detail on what happens next. Learn more here.