Making extra before-tax contributions into super (called concessional contributions) can help boost a person’s retirement savings. But
fund members need to be aware of the implications for when they exceed the concessional contributions cap.
Since 2013-14, when the excess concessional contributions refunding scheme came into effect, individuals exceeding their concessional contribution cap will accrue a tax liability.
The excess concessional contribution (CC) amount will be added to the individual’s assessable income for the relevant year and taxed at their marginal tax rates plus an excess CCs charge (as explained below). The individual will, however, be entitled to a 15% non-refundable tax offset to compensate for the tax already paid by their fund(s) on the same excess amount.
The ATO will determine whether there are any excess CCs once the individual’s fund has finalised its reporting requirements and the
individual has lodged their personal tax return for the relevant income year. Upon exceeding their CCs cap, the individual will receive an
excess CC determination from the ATO advising them that their excess CCs amount has been included as assessable income in their tax return.
Together with the determination, the ATO will issue the individual with an income tax return notice of assessment or notice of an amended
First, the CCs (totalling $30,000) would be included in the SMSF’s assessable income for 2019-20 and taxed at
15% (that is $4,500).
Secondly, the ATO would add the excess CCs of $5,000 to Greg’s assessable income for 2019-20 and recalculate his income tax for that year allowing for a 15% tax offset to reflect the tax already paid by the SMSF. This gives Greg the following tax liability: $5,000 taxed at a marginal tax rate of 34.5% ($5,000 x 34.5% = $1,725). Less 15% tax offset ($5,000 x 15% = $750). Total $975.
EXCESS CONCESSIONAL CONTRIBUTION CHARGE
When an individual has their tax payable increased due to having their excess CCs included in their assessable income, they will also have to pay an excess CC charge (essentially an interest charge) that applies to the extra tax liability. The excess CC charge:
Following on from Greg’s scenario earlier, the excess CC charge will apply to his extra tax liability amount of $975 (not the full $5,000 excess CCs) from 1 July 2019 to 20 September 2020 (being the day before tax is due to be paid under his first notice of assessment).
SHORTFALL INTEREST CHARGE
An individual’s tax liability may also increase by the shortfall interest charge (SIC) that applies to the shortfall between the amount of tax the individual paid originally, and the amount of extra tax identified in their amended tax return (which includes the excess CCs and applicable 15% tax offset).
The SIC rates are the same as the excess CC charge, and is applied to the shortfall amount from the time the original tax liability was
payable until the day before the extra tax liability related to the amended assessment for the excess CCs is due. The SIC is charged on
the total of the extra tax payable due to excess CCs, plus the amount of the excess CC charge.
In Greg’s case, Greg may need to pay the SIC on the extra income tax liability of $975 plus the excess CC charge amount. Many taxpayers seem to be unaware of the SIC until they receive an amended assessment from the ATO.