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  • Assessment of ECT

    We must determine whether a person has exceeded their contributions caps in each income year and, if applicable, raise an assessment for ECT in accordance with section 292-230.

    To assess a person's liability to ECT, we use:

    • details of contributions received by super funds during the year
    • tax return information, if relevant
    • information from first home saver accounts
    • date of birth.

    This assessment is not required to be made by a person or their super fund (or financial institution for first home saver accounts). Their responsibility is to provide information to enable that assessment to be made.

    The rate of ECT applied varies with the type of contribution (concessional or non-concessional). If a cap has been exceeded, we will determine the amount of tax payable and issue an ECT notice of assessment for the relevant year.

    Before issuing an assessment, a pre-assessment letter will be issued. If the person believes the information used to calculate the assessment is incorrect, they have 28 days to contact the ATO and advise the action being taken to correct the information. Additional time may be given to correct the information before an assessment is raised.

    ECT assessments may be amended and the person has review rights.

    When the assessment is issued, a release authority (voluntary or compulsory) will be sent at the same time. See Collection and recovery and Payment.

    An assessment of ECT is made on the basis of what an individual, or their representative acting on their behalf, actually did when making the contribution, rather than what they later say they intended to do. This was reinforced by the Administrative Appeals Tribunal (AAT) when it handed down a decision on 15 March 2011.

    In this case, the individual argued before the AAT that his accountant had incorrectly allocated contributions to him that were intended for another member of the fund, however, that individual was not a member of the fund at the time the contribution was made.

    The person suggested that he should not be made to pay for what was an innocent mistake made by a third person.

    The AAT decision supports the ATO position that the issue of whether excess contributions have been made is a question of fact in the circumstances and the intent of the parties is not determinative.

    See also:

    Rate of tax

    Concessional contributions

    Concessional contributions in excess of a person's cap are taxed at an additional 31.5%. This tax is imposed on the person, who may withdraw from their super fund an amount up to the amount of their ECT liability.

    The 31.5% tax is in addition to the 15% tax paid on all contributions included in a super fund's assessable income.

    Therefore, contributions in excess of the concessional contributions cap have an effective tax rate of 46.5% (that is, 15% plus 31.5%).

    In the case of excess concessional contributions there may be other tax implications.

    Non-concessional contributions

    Non-concessional contributions in excess of a person's cap are subject to tax at the rate of 46.5%. Non-concessional contributions are not included in the assessable income of the fund and thus not subject to the 15% contributions tax.

    Excess non-concessional contributions tax is imposed on the person, who must withdraw an amount from their super fund equal to their non-concessional ECT liability using a release authority.

    A release authority cannot be used to withdraw an amount from a defined benefit interest. The release authority can be used to obtain money from another super fund, even if a contribution was not made to that fund during the income year. However, if a person has their entire super balance in a defined benefit interest, they will not be able to use the release authority and will have to pay their ECT liability from their own money.

    In both the case of excess concessional and excess non-concessional contributions the tax concessions are effectively removed.

    93% tax

    Excess concessional contributions count toward the non-concessional contributions cap. This means it is possible to have an effective tax rate of 93% on this amount as:

    • concessional contributions are taxed at 15% on entry to the fund
    • an additional 31.5% tax is applied for exceeding the concessional contributions cap
    • an additional 46.5% tax is imposed if the same contributions also exceeds the non-concessional cap.
    Example: calculating ECT

    During 2010-11, Arthur is 56 and his employer made an $80,000 concessional contribution to his super fund. The contribution included compulsory employer contributions and salary sacrifice contributions.

    He forgot the concessional contributions cap was reduced to $50,000 two years earlier.

    This amount is assessable income to the fund, therefore tax is payable on the $80,000 by the fund of

    $80,000 x 15% = $12,000

    Of the $12,000 tax payable, $4,500 relates to the contribution tax payable on the excess ($30,000) component of the total concessional contribution.

    Arthur exceeded the concessional contributions cap by $30,000 (that is, $80,000 - $50,000). Excess concessional contributions tax is payable on the excess contribution of

    $30,000 x 31.5% = $9,450

    The $30,000 excess concessional contribution is counted towards the non-concessional contributions cap for the 2010-11 income year.

    During the year Arthur made a $450,000 non-concessional contribution to his super fund, which he received as an inheritance when his mother died, using the bring-forward provisions.

    Therefore, Arthur's non-concessional contributions for the year total $480,000 (that is, $450,000 + $30,000 (excess concessional contribution)).

    Arthur's non-concessional contributions cap is $450,000, therefore he has excess non-concessional contributions of

    $480,000 - $450,000 = $30,000

    He is liable to pay excess non-concessional contributions tax of

    $30,000 x 46.5% = $13,950

    Arthur must pay total ECT (concessional and non-concessional) of

    $9,450 + $13,950 = $23,400

    The total amount of tax payable on the excess contribution is $27,900

    $4,500 + $9,450 + $13,950 = $27,900 - a total tax rate of 93%.

    End of example
      Last modified: 06 Sep 2017QC 34181