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Date of article: 15 May 2015
Last updated: 15 May 2015

Refund of excess non-concessional contributions

Excess non-concessional contributions will no longer be taxed at a penalty rate of taxation. The reform will provide a fairer taxation of excess non-concessional contributions.

The reforms will allow individuals to withdraw superannuation contributions in excess of the non-concessional contributions cap made from 1 July 2013 and associated earnings, with these earnings to be taxed at the individual's marginal tax rate.

Prior to the changes, the amount exceeding the non-concessional contributions cap was subject to excess contributions tax rate of 45% plus Medicare levy. The rate of tax was thought to be an unfair tax, even punitive, especially when the excess amounts were unintentional. This is because these non-concessional contributions are made from after taxed money – assuming tax at the highest marginal tax rate has been paid when the money was earned, and then again taxed at the excess contributions rate when the contributions was made as it exceed the cap amount, the total tax that would have been paid would be 93%.

Individuals that made non-concessional contributions in excess of the cap on or after 1 July 2013 can now choose how their excess is to be taxed.

You can elect withdraw the excess contributions along with 85% of associated earnings from your superannuation fund.

If you elect to withdraw the excess non-concessional contributions and 85% of associated earnings, the full associated earnings amount will be included in the relevant year’s individual income tax return and taxed at your marginal tax rate. The individual will also receive a 15% tax offset to recognise the associated earnings are already taxed in the fund.

If you do not elect to withdraw your excess non-concessional contribution amounts, or do not make any election, you will be subject to excess contributions tax.

19 March 2015, Tax and Superannuation Laws Amendment (2014 Measures No. 7) Act 2015.

 

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