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    Continuing problems with excess super contributions

    The line of cases dealing with excess superannuation contributions continues. In the latest, the Commissioner has successfully appealed against a previous AAT decision to disregard a contribution on the basis of ‘special circumstances’ (FC of T v Dowling [2014] FCA 252). Obviously, the only real way to avoid all problems is to make sure that no excess contributions occur – whether concessional or non-concessional. Ongoing education of your clients is necessary to stress to them the importance of getting your help to make sure that contributions caps are not exceeded.

    The new regime from 1 July 2013 for excess concessional contributions reduces the pain (particularly for taxpayers with lower marginal tax rates), but nothing has changed for excess non-concessional contributions. In general terms, excess concessional contributions will be taxed in total at the marginal rate of the relevant member (15% tax payable by the super fund on the contribution and the balance payable by the member) and excess non-concessional contributions will continue to be taxed at 46.5%. Excess concessional contributions will also result in an ‘interest type’ charge at the same rate as the shortfall interest charge, calculated daily.

    An important planning point arises if there is a slip up and excess concessional contributions are made for a member. The member may elect to release all or part of the excess contributions from the super fund, up to a maximum of 85%, ostensibly to pay the additional tax assessed to the member on the excess contributions. Even if not requiring the funds for that purpose, in some cases the member will be much better off to elect to release the maximum amount. The reason is that excess concessional contributions still count towards non-concessional contributions, except to the extent that the excess concessional contributions are elected to be released by the relevant member (in which case there is also a reduction for the 15% tax payable by the super fund). This might be very important where otherwise the member's non-concessional contributions cap will be exceeded or the 3 year ‘bring forward’ rule will be triggered.

    03 Apr 2014

    Topic: Income Tax/SMSFs

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