Rate of tax
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 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.
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