Excess Contributions Tax Or Charge
Referred to as ECT or ECC
The general scheme is that an excess contributions tax or charge is the financial punishment for making contributions to your super fund which are in excess of the caps which are specified.
The precise tax position depends on the contributor’s age, the timing of the transactions and whether concessional or non-concessional contributions are involved.
Timing is crucial
Contributions are regarded by the Tax Office as being paid at the time they are received by the fund, and the timing of contributions is a critical factor in determining the relevant year for caps calculations.
Employer contributions will most often be received by the fund after a period end. This means that if the period end also happens to be the end of the financial year, the contributions will form part of the later year’s contribution caps calculations.
Non-concessional contributions are generally those which are not tax deductible, include any excess concessional contributions and there are some exclusions.
2013-14 and later yearsSofter Excess Concessional Contributions rules from 1 July 2013
In contrast to the potentially extremely high automatic penalty tax consequences of going over the concessional contributions limits that have applied in previous years, from 1 July 2013 tax on the excess concessional contributions are at least limited to the individual’s marginal rate plus an interest charge.
After 30 June 2013 excess contributions amount over the allowable cap can be included in the contributor’s assessable income for that year and therefore taxed at the applicable marginal tax rate according to the normal tax scale, plus an excess concessional contributions charge (ECC).
A 15% contributions tax is still payable by the super fund on the excess contributions, and is not refundable. However a 15% personal tax offset is allowed to compensate for the contributions tax already paid by the super fund, and 85% of the excess concessional contributions can optionally be withdrawn from the superannuation fund to help pay the income tax assessment.
Assessments for excess concessional contributions will be proactively issued by the Tax Office[/popup] based on information compared from the taxpayer’s date of birth, the super fund and personal income tax returns. When applicable the taxpayer then has an option to withdraw 85% of the excess contributions.
Excess Non-Concessional Contributions
Breaches of the non-concessional cap are taxed at the rate of 46.5% in 2013-14 increasing to 49% in 2014-15.
Note however the Budget 2014-announced amendment to allow the option for withdrawal and tax at marginal rates (such as is in place for excess non-concessional contributions) to take effect from 1 July 2013. Amending legislation was passed by the Federal parliament- see Tax and Superannuation Laws Amendment (2014 Measures No. 7) Bill 2014.
Changes applicable for 2011-12 and 2012-13 – the $10,000 breach limit
For the 2011-12 and 2012-13 financial years only, if you have contributed over the concessional cap by $10,000 or less, there is a once-only opportunity to have the excess contributions refunded and assessed at your marginal tax rate, rather than pay excess contributions charge.
The position before 1 July 2013
Before 1 July 2013 – apart from the once-only under $10,000 refund opportunity in 2011-12 and 2012-13 – the excess contributions tax was payable at punitive rates:
- on excess concessional contributions: 31.5%; and
- on excess non-concessional contributions: 46.5%
The ECT is applied in addition to the contributions tax, normally 15% of concessional contributions, or zero on non-concessional contributions. This double-taxing effect results in a total tax of 46.5% on excess concessional contributions (15% + 31.5%).
An additional “sting” in the tail, could occur because the excess concessional contributions are also counted towards the non-concessional contributions cap. If this causes the non-concessional cap to be breached, a further ECT of 46.5% becomes payable, and the total taxes on the non concessional excess rises to 93% (i.e. 15% + 31.5% + 46.5%). This potentially harsh outcome led to the more recent changes being introduced to allow contributions reversals and a moderation of the penalty effects..
For further information on the ECT position for the years before 1 July 2013, see Excess Contributions Learner Guide
- How it works – Excess concessional contributions option for withdrawal
This page was last modified on 23 Aug 2017