Excess Contributions Tax Or Charge

Referred to as ECT or ECC

Making super contributions in excess of the allowable caps exposes the excess contributions to tax calculated at the taxpayer’s marginal rate plus an Excess Contributions Charge and time-based interest.

The current scheme (since 1 July 2013) provides that the excess contributions are included in the contributor’s tax return to be taxed at the marginal rate, offset by 15% (non-refundable) tax offset reflecting the tax paid in the super fund.

Optionally the taxpayer can withdraw 85% of the excess contributions from the super fund.

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.

Salary sacrifice contributions by their nature are attributed to the concessional cap.

Form NAT 74851 can be used to notify the Tax Office where concessional contributions in one financial year were not allocated until the following financial year by the Super Fund. The Tax Office recognises ‘contribution reserving’ as a valid strategy (see TR 2013/22). See more about this here and commentary here. This form cannot be used non-concessional contributions.

2013-14 and later years – Excess Concessional Contributions rules from 1 July 2013

The penalty tax impact of excess concessional contributions in earlier years was very high, potentially up to 93%.

From 1 July 2013 tax on the excess concessional contributions is limited to the individual’s marginal rate plus a defined penalty percentage rate ECC.

After 30 June 2013 excess contributions amount over the allowable cap are 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).

The 15% contributions tax remains payable by the super fund on the excess contributions, but there is a 15% tax offset on refunded contributions included in the individual’s tax return.

After quantifying the excess, the Tax Office issues a determination identifying the excess and the amount of the charge, and providing the individual with a 60 day option to authorise release (up to 85%) of the excess contributions from the super fund.

If the option is not exercised, the excess remaining in the fund is counted towards the non-concessional contributions cap.

See a summary of the process here (PDF).

Excess concessional contributions charge rates

The amount of the ECC is calculated on the amount of tax involved at a rate which matches the shortfall interest charge (SIC).

The ECC percentage rates are adjusted quarterly and updated on the Tax Office website here.

Late or under-payment of the ECC attracts further penalty calculations as for any tax debt.

Determination of excess concessional contributions 

Based on tax and fund data, if there are excess contributions the Tax Office will proactively send a notice of determination to the individual.

The notice will detail the basis of calculation and an amount of Excess Contributions Charge for payment and provide an option to withdraw up to 85% of the excess from the super fund.

Amendment and Review

ECC assessments and determinations are subject to rights of objection in circumstances of error or incorrect application of the law.

In special circumstances, the Commissioner for Taxation may provide a determination that some or all of the contributions should be either disregarded or reallocated to another year.

The circumstances under which this latter discretion may be exercised are quite narrow. The Tax Office has issued guidance in PS LA 2008/1 and some case examples are outlined here.

See further: Application – excess contributions determination

Release of excess contributions

There are only 7 kinds of release authority issued by the Tax Office.

All forms contain specific instructions and time limits. They are described in more detail here.

Release Authority TypeSent toPurpose
Compulsory release authorityIndividualAuthority for compulsory withdrawal of excess non-concessional contributions for 2013-14 years onwards
Excess concessional contributions release authoritySuper FundCompulsory authority for super fund to release excess concessional contributions to the Tax Office, 2013-14 onwards
Excess non-concessional contributions release authoritySuper FundAuthority to release excess non-concessional contributions when a member has elected to have the contributions returned, 2013-14 onwards
Commissioner’s compulsory authority to release excess contributions tax and statementSuper FundCompulsory authority for the super fund to withdraw and pay to the Tax Office an amount equal to the excess contributions tax when the individual has failed to do so as required. For 2013-14 onwards.
Release authority for Division 293 taxIndividualA release authority for Division 293 tax can be used to pay a Division 293 tax debt if the individual chooses to use it.
Commissioner’s release authority for Division 293 taxSuper FundA release authority to cover payment of a Division 293 tax debt which has been unpaid for more than 120 days
Refund of excess concessional contributions release authoritySuper FundInstructions for release 2011-12 and 2012-13 years only
Voluntary release authorityIndividualVoluntary authority to withdraw excess contributions for years up to 2012-13

Excess Non-Concessional Contributions

Non-concessional contributions are generally those which are not tax deductible, include any excess concessional contributions and there are some exclusions.

[Budget – 13 May 2014 ] A 2014 Federal Budget proposal which took effect from 1 July 2013 is to allow excess non-concessional contributions and associated earnings to be refunded with earnings taxed at the taxpayer’s marginal rate.

Legislation was passed by the Federal parliament in March 2015 – see Bill 2014

Excess non-concessional contributions are taxable at the top marginal tax rate (currently 47%) unless withdrawn from the super fund. Earnings on the excess contributions withdrawn are included in taxable income of the individual.

Excess contributions detected by the Tax Office from tax return and super fund data are the basis of an excess Non-Concessional Contribution determination issued to the individual.

The determination provides an option (60 days) to withdraw the full amount of the excess plus 85% of the associated earnings.

Associated earnings are calculated at a pre-determined arbitrary rate.

The full associated earnings amount is taxable income, taxed at the taxpayer’s marginal rate less a non-refundable 15% tax offset in recognition of the tax paid in the super fund. This gives rise to an amended tax assessment issued by the Tax Office.

The refunded contributions and earnings are released to the Tax Office which settles government debts (including the amended assessment) and refunds the balance.

If no action is taken by the individual, the excess contributions are left in the super fund and the highest marginal tax rate (currently 47%) is applied to the excess contributions plus associated earnings. The Tax Office will issue an amended assessment and proactively arrange the release of funds to settle the debts.

Temporary Budget Repair Levy 1 July 2014 to 30 June 2017

The Federal Budget 2014-15 raised the top marginal tax rate by 2% to 47% for a period of 3 years commencing 1 July 2014. As well as taxing high incomes, the top marginal tax rate is typically applied as a penalty, or in circumstances of breach or non-compliance.

Consequently whenever the “top marginal rate” applies in the period from 1 July 2014 to 30 June 2017 the percentage rate is 49%, inclusive of medicare levy.

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 was the 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%).

Additionally 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 up to 2012-13 see Excess Contributions Learner Guide

Further information

 

.

This page was last modified on 2018-12-07