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  • Types of contributions and the caps that apply

    Concessional contributions are generally contributions made before tax while non-concessional contributions are generally contributions made after tax. They are treated differently in the fund and have different caps.

    Concessional contributions

    Concessional contributions are defined in section 291-25 of the Income Tax Assessment Act 1997 (ITAA 1997) as contributions made to a person's complying super fund that are included in the assessable income of the super fund.

    The three types of contributions included in the assessable income of a fund are:

    • contributions made on behalf of someone else (for example, by an employer for an employee)
    • contributions made which entitle the contributor to a deduction
    • certain amounts transferred from a foreign super fund to an Australian super fund.

    Concessional contributions do not include any:

    • contributions on behalf of a spouse (unless the contribution is made because the spouse is an employee of the contributor)
    • government co-contributions
    • contributions for a child (unless the contribution is made because the child is an employee of the contributor).

    Excluded contributions

    Paragraph 291-25(2)(c) of the ITAA 1997 specifically excludes the following amounts from a person’s concessional contributions (even though these contributions might be assessable income of the fund):

    • rollover super benefits, to the extent of the untaxed elements in the fund, and not an excess untaxed rollover amount for the person
    • the amount of a super benefit transferred from a foreign super fund to an Australian complying super fund, specified in a choice made by the former member of the foreign fund under section 305-80 of the ITAA 1997
    • contributions made to a constitutionally protected fund (CPF).

    Reserve allocations

    A trustee of a super fund may maintain reserves, provided the governing rules of the fund do not prohibit them.

    An amount allocated from a reserve will generally be counted as concessional contributions for the member (unless otherwise excluded because certain conditions are met).

    In line with subsection 291-25(3) of the ITAA 1997, certain amounts allocated from a reserve to a member are treated as concessional contributions and therefore count towards the concessional contributions cap.

    Regulation 292-25.01 of the Income Tax Assessment Regulations 1997 contains the rules that specify which reserve allocations are to be included as concessional contributions.

    See also:

    • TD 2013/22 Income tax: 'concessional contributions' – allocation of a superannuation contribution with effect from a day in the financial year after the financial year in which the contribution was made

    Taxation of concessional contributions in the fund

    Concessional contributions are included in the assessable income of a complying super fund and are taxed in the fund at 15%. Concessional contributions are taxed at the lower flat rate of 15% rather than a person’s marginal tax rates, if they were included in their assessable income. The difference in tax paid is commonly referred to as a ‘tax concession'.

    Concessional contributions cap

    The concessional contributions cap does not limit the amount of concessional contributions made to the fund. The cap applies per person, not per employer or super fund. A person has excess concessional contributions (ECC) for an income year if they exceed their concessional contributions cap for that income year.

    The concessional contributions caps are:

    Income year

    General cap

    Person 49 years old or over on the last day of the previous income year

    Person 59 years old or over on the last day of the previous income year

    2016–17

    $30,000

    $35,000

    $35,000

    2015–16

    $30,000

    $35,000

    $35,000

    2014–15

    $30,000

    $35,000

    $35,000

    2013–14

    $25,000

    $25,000

    $35,000

    Indexation of the concessional contributions cap

    Section 960-285 contains the indexation rules for the concessional contributions cap. The concessional contributions cap is indexed annually based on movements in the average weekly ordinary time earnings (AWOTE), for the December quarter, rounded down to the nearest multiple of $5,000.

    There was a temporary pause to the indexation of the general concessional contributions cap at $25,000 up to, and including, the 2013–14 income year. Indexation recommenced in the 2014–15 income year, with the general concessional cap rising to $30,000.

    Exercise 1

    Is the following statement true or false? In the 2014–15 income year, a person who was 50 years old on the last day of the previous income year had a concessional contributions cap of $35,000.

    Answer 1

    True. In the 2014–15 income year, a person who was 50 years old on the last day of the previous income year had a concessional contributions cap of $35,000.

    Exercise 2

    Select all the correct responses. Concessional contributions include:

    • employer contributions made on behalf of an employee
    • contributions that the contributor are entitled to claim as a deduction
    • contributions made to a CPF
    • all reserve allocations.

    Answer 2

    The correct answers are the first two responses. Concessional contributions include employer contributions made on behalf of an employee and contributions that the contributor is entitled to as a deduction. Contributions made to a CPF are excluded contributions. Only certain reserve allocations are treated as concessional contributions.

    Non-concessional contributions

    Where the contributor is not entitled to a ‘tax concession’ for making the contribution, they are called non-concessional contributions. Non-concessional contributions are not subject to the 15% tax payable by the fund on assessable contributions, and are most commonly known as ‘after-tax’ contributions. Non-concessional contributions are defined in section 292-90 of the ITAA 1997.

    Unless specifically excluded, they include:

    • contributions made by, or for, a person that are not included in the assessable income of a super fund (that is, personal contributions which are not allowable as an income tax deduction)
    • the amount of any ECC for that income year that has not been released from a super fund
    • additional amounts allocated to a person by the super fund that are not assessable income of the super fund
    • spouse contributions (unless the spouse is the person’s employer)
    • contributions made for a person less than 18 years old that are not made by their employer
    • contributions in excess of a person’s lifetime capital gains tax (CGT) cap amount
    • amounts transferred from foreign super funds, excluding amounts included in the fund’s assessable income
    • contributions included in the contributions segment of the member's super interest in a CPF
    • contributions made on or after 10 May 2006 to a fund while it was non-complying but which is now complying.

    Under the Trans-Tasman retirement savings portability scheme (which came into effect on 1 July 2013), New Zealand sourced retirement savings transferred to Australia are treated as non-concessional contributions.

    Excluded non-concessional contributions

    Section 292-90 also specifically excludes the following contributions from being non-concessional contributions:

    • government co-contributions
    • certain contributions arising from structured settlements or orders for personal injuries
    • certain contributions relating to some CGT small business concessions (that do not exceed the CGT cap amount)
    • contributions made to a CPF (other than a contribution included in the contributions segment of the member's super interest in the super fund)
    • contributions not included in the assessable income of a public sector super scheme because of a choice made by the trustee under section 295-180 of the ITAA 1997
    • a rollover super benefit
    • amounts not included in a fund’s assessable income because of subdivision 295-D of the ITAA 1997 (that is, transfer of taxation liabilities to an investment vehicle).

    Non-concessional contributions caps

    The non-concessional contributions cap is six times the general concessional contributions cap for the 2009–10 and later income years, in line with subsection 292-85(2) of the ITAA 1997.

    The non-concessional contributions cap is:

    Income year

    Non-concessional contributions cap

    2016–17

    $180,000

    2015–16

    $180,000

    2014–15

    $180,000

    2013–14

    $150,000

    The non-concessional contributions cap moves in line with the indexation of the general concessional contributions cap. The non-concessional contributions cap is not affected by the temporary increase in the concessional contribution cap to $35,000 for some people, based on their age.

    Bring forward

    Under 65 years old

    People who are under 65 years old for at least one day of an income year may be able to make non-concessional contributions of up to three times their non-concessional contributions cap over a three-year period. This is known as the bring forward provision. The bring-forward cap is three times the non-concessional contributions cap of the first income year that the non-concessional cap is exceeded.

    For example, if a person brings forward their contributions in the 2014–15 year, the cap amount would be $180,000 x 3 = $540,000.

    Example 1.1

    Sandra is 53 years old and contributes $200,000 non-concessional contributions to her super fund during the 2014–15 income year. This triggers the bring-forward provision as the contribution exceeds the non-concessional contributions cap amount of $180,000.

    Sandra can contribute up to $340,000 ($540,000 – $200,000 = $340,000) non-concessional contributions over the next two income years without exceeding the non-concessional contributions cap.

    End of example

     

    Example 1.2

    Alan is 60 years old and makes a non-concessional contribution of $540,000 to his super fund in one contribution in the 2014–15 income year. This triggers the bring-forward provision, as the contribution exceeds the non-concessional contribution cap amount of $180,000.

    During the next two income years Alan cannot make any more non-concessional contributions to his super funds without exceeding the non-concessional contributions cap ($540,000 – $540,000 = $0).

    End of example

    65 years old or over

    A 65 years old or over on 1 July cannot access the bring-forward provision.

    People who are 65 to 74 years old can make non-concessional contributions up to the cap for that income year, provided they satisfy the work test set out in Superannuation Industry (Supervision) Regulations 1994 (SISR) regulation 7.04.

    If a person is 63 or 64 years old at the end of an income year and they take full advantage of the bring-forward provision in that year, they are not required to meet the work test in either of the following two income years.

    By not allowing people over 65 years old to bring-forward entitlements to non-concessional contributions, people should not inadvertently breach the cap by failing to meet the work test in the following two income years.

    Example 1.3

    Bernard is 65 years old on 1 July 2014. Therefore, his non-concessional contributions cap amount is $180,000 for the 2014–15 income year.

    He made the following non-concessional contributions to his super fund during the income year, following his birthday:

    • $100,000 in October
    • $100,000 in April.

    Bernard has made $200,000 non-concessional contributions in the income year. As he is not eligible for the bring-forward provision, Bernard has exceeded his non-concessional contributions cap by $20,000 ($200,000 – $180,000 = $20,000).

    End of example

    Contribution limit

    To help prevent a person from inadvertently exceeding the non-concessional contributions cap, funds cannot accept member contributions (defined in the SISR to include all contributions apart from employer contributions) which are greater than the member’s fund-capped contribution limit.

    Fund capped contribution limits for members

    If the member is…

    then the fund-capped contribution limit is…

    65 years old but less than 75 on 1 July of the income year

    the non-concessional contributions cap for that income year.

    64 years old or less on 1 July of the income year

    three times the non-concessional contributions cap for that income year.

    In line with SISR subregulation 7.04(4), if a fund receives a single contribution in breach of the fund-capped contribution limit, they must return the excess amount to the member. The fund must do so within 30 days of becoming aware that the amount is inconsistent with applicable contribution standards.

    The fund-capped contribution limit applies per contribution and not to the person’s total member contributions to the fund.

    Fund-capped contributions do not include either:

    • contributions made under a notice of intention to deduct personal contributions (a valid and acknowledged notice under section 290-170 of the ITAA 1997)
    • contributions that are structured settlements or orders for personal injuries (that meet the requirements of paragraph 292-95(1)(d) of the ITAA 1997)
    • contributions relating to some CGT small business concessions (that meet the requirements of subsection 292-100(9) of the ITAA 1997)
    • payments under the super guarantee shortfall component (made by the Commissioner of Taxation under section 65 of the Superannuation Guarantee (Administration) Act 1992)
    • payments from superannuation holding accounts special account (made by the Commissioner of Taxation under section 61A of the Small Superannuation Accounts Act 1995)
    • government co-contributions made under the Superannuation (Government Co contribution for Low Income Earners) Act 2003
    • contributions that are directed termination payments (within the meaning of section 82-1 of the Income Tax (Transitional Provisions) Act 1997).

    The ATO's view is that the 30-day requirement obliges funds to return contributions without delay. The trustee remains obliged under SISR subregulation 7.04(4) to return the amount, even if more than 30 days has elapsed since the trustee became aware of the obligation.

    Example 1.4

    Rosalind is 58 years old and makes a non-concessional (personal) contribution of $600,000 in the 2014–15 income year. Rosalind's fund checks her member details and works out that her fund-capped contribution limit is $540,000. They return the excess part of the contribution of $60,000 ($600,000 - $540,000 = $60,000) to her within 30 days. After the end of the income year Rosalind's fund reports her non-concessional contributions of $540,000.

    End of example

     

    Example 1.5

    Narelle is 60 years old. She makes two non-concessional contributions of $400,000 in the 2014–15 income year, totalling $800,000. Individually, neither of Narelle's contributions is greater than her fund-capped contribution amount of $540,000 for the income year (that is, three times the first year’s non-concessional contributions cap of $180,000).

    Therefore, her fund does not have to return any part of the contributions to her, unless her fund is aware that the amount received is inconsistent with SISR subregulations 7.04(1), (2) or (3) (the acceptance of contributions rules).

    If the excess amount is not returned to Narelle, her fund must report $800,000 as Narelle’s non-concessional contributions for the year and she will have exceeded her non-concessional contributions cap by $260,000
    ($800,000–$540,000=$260,000).

    End of example

     

    Example 1.6

    Henry is 55 years old. His concessional contribution cap is $35,000 and non-concessional contribution cap is $180,000.

    He makes a personal contribution of $575,000 in the 2014–15 income year. At this time he also gives his fund a valid notice that he intends to claim $35,000 as a personal super deduction (which means this amount essentially becomes a concessional contribution–assessable to the fund). Henry's fund checks his member details and works out that his fund-capped contribution limit for the 2014–15 income year is $540,000 (3 x $180,000).

    After deducting the amount covered by the notice, the fund-capped contribution amount is $540,000 (the amount treated in the fund as a non-concessional contribution). The fund does not have to return any amount to Henry. Henry's fund reports personal contributions of $575,000 for him for the income year.

    This is matched up with the $35,000 personal super deduction claimed by Henry in his tax return. Henry will have concessional contributions of $35,000 and his non-concessional contributions will be $540,000 ($575,000 - $35,000 = $540,000). This means that Henry will not have exceeded his $35,000 concessional contributions cap or the $540,000 non-concessional contributions cap for the 2014–15 income year.

    End of example

    See also:

    • ATO ID 2007/225 Superannuation contributions: acceptance of fund capped contributions by a self-managed superannuation fund
    • ATO ID 2008/90 Superannuation contributions: return of fund capped contributions by self-managed superannuation fund
    • ATO ID 2009/29 Superannuation contributions: return of contribution by self-managed superannuation fund – after 30-day time limit

    Exercise 3

    Choose the incorrect response.

    Non-concessional contributions include:

    • personal contributions for which someone is not able to claim a deduction
    • contributions made for a person less than 18 years old, not made by their employer
    • government co-contributions
    • spouse contributions, unless the spouse is a person’s employer.

    Answer 3

    The answer is government co-contributions. Section 292-90 specifically excludes government co-contributions from being non-concessional contributions.

    Exercise 4

    Is the following statement true or false?

    The non-concessional contributions cap for the 2014-15 income year is $180,000.

    Answer 4

    True. The non-concessional contributions cap for the 2014-15 income year is $180,000.

    Exercise 5

    Choose the correct response.

    Mary turns 60 years old in the 2014-15 income year and has non concessional contribution totalling $240,000 in that year. What amount of non-concessional contributions can be made to Mary’s super fund without exceeding the cap in the following two years?

    • $150,000 in each year.
    • Up to $250,000 within the following two years.
    • Nothing, as she has exceeded her cap in 2014-15.
    • Up to $300,000 within the following two years.

    Answer 5

    The correct answer is up to $300,000 within the following two years. As Mary is under 65 years old and made a total of $240,000 non-concessional contributions in the 2014-15 income year she has triggered the bring-forward provision. This means that she can make further non-concessional contributions up to $300,000 in the following two years without exceeding the $540,000 cap.

    Exercise 6

    Is the following statement true or false?

    From the 2014-15 income year, a person who is 70 years old and retired has a non-concessional contributions cap of $180,000 per income year.

    Answer 6

    False. People who are 65 to 74 years old will have a non-concessional contributions cap of $180,000 per year provided they satisfy the work test as set out in SISR regulation 7.04.

    Fairer taxation of excess concessional contributions

    For the 2013-14 and later income years, a person’s excess concessional contributions (ECC) are included in their assessable income for the income year. People who exceed their concessional contributions cap in an income year are entitled to a tax offset for 15% of their ECC for that income year so they are not subject to double taxation on their ECC amount.

    A person must pay an ECC charge so they do not obtain a financial advantage due to the delay in payment of tax on their ECC.

    The ECC and tax offset will be shown in the person’s income tax notice of assessment (NOA) or notice of amended assessment (NOAA).

    A person’s ECC determination provides the amount of their ECC and ECC charge for the income year. They have the option to elect to release up to 85% of their ECC. Any unreleased ECC amounts are counted for non-concessional contributions purposes.

    Incorporating ECC into a person’s assessable income may have a flow-on effect to other benefits and payments such as:

    • income tax liability
    • Medicare levy
    • Medicare levy surcharge (MLS)
    • mature age worker tax offset
    • child support
    • Centrelink benefits
    • low income super contribution
    • super co-contribution
    • temporary budget repair levy.

    Increasing a person’s assessable income may also affect whether a person is liable for Division 293 tax.

    Excess concessional contributions determination

    Where a person has ECC in an income year for the 2013-14 or later income years, as outlined in subsection 97-5(1) of Schedule 1 to the Tax Administration Act 1953 (TAA), we must make a written determination stating the amount of the person’s:

    • ECC
    • ECC charge.

    As outlined in subsection 97-5(2) of Schedule 1 to the TAA, this determination is called an ‘excess concessional contributions determination’. The ECC determination may be included with any other notice, such as the NOA.

    Details of any excess non-concessional contributions (ENCC) will also be provided with the ECC determination, but do not form part of the determination.

    Tax offset

    Subsection 291-15(a) of the ITAA 1997 requires any ECC to be included in a person’s assessable income for that income year. As a result the ECC will be taxed at their marginal tax rates.

    Concessional contributions are included in the super fund’s assessable income and so are taxed at 15% in the fund. Subsection 291-15(b) of the ITAA 1997 entitles a person to a tax offset for an income year, equal to 15% of their ECC. In effect, this tax offset compensates the person for the 15% tax paid on their ECC in the fund.

    Under item 20 of the table in subsection 63-10(1) of the ITAA 1997, the tax offset in relation to ECC cannot be refunded, transferred or carried forward.

    Example 2.1

    Jack has assessable income of $20,000 and ECC of $10,000 for the 2015-16 income year. He has deductions of $15,000 for the income year making his taxable income $15,000. The amount of tax payable on his taxable income is $0.

    He is entitled to a tax offset for the amount of $1,500 ($10,000 x 15%); however, he has no tax payable on his taxable income. The tax offset cannot be refunded, transferred to another account or carried forward to another income year, so the tax offset will be reduced to $0.

    End of example

     

    Example 2.2

    Jean is 61 years old and has concessional contributions totalling $40,000 in the 2015-16 income year. Her concessional contributions cap for the 2015-16 income year is $35,000, so Jean has ECC of $5,000.

    All of Jean’s concessional contributions were taxed in her super fund at 15% (totalling $6,000 on her concessional contributions of $40,000).

    As the $5,000 ECC are included in Jean’s assessable income, Jean is entitled to a tax offset of $750 ($5,000 x 15%) so she does not have to pay tax twice on the same amount.

    Jean’s concessional contributions are taxed as follows:

    • $35,000 is taxed at the concessional rate of 15%, and
    • the ECC of $5,000 are taxed at Jean’s marginal tax rates by being included in her assessable income. However, she receives a tax offset for the amount of tax paid by the super fund on the $5,000.
    End of example

    Exercise 6

    Is the following statement true or false?

    The ECC tax offset can be refunded if the whole amount is not used to pay an income tax liability.

    Answer 6

    False. The tax offset in relation to ECC cannot be refunded, transferred or carried forward.

    Exercise 7

    Choose the correct response. Jean-Claude has an amount of $5,000 ECC for an income year and is entitled to a tax offset for the amount of:

    • $1,000
    • $1,500
    • $700
    • $750.

    Answer 7

    The correct answer is $750. Jean-Claude has an amount of $5,000 ECC for the income year and is entitled to a tax offset for the amount of $750 ($5,000 x 15% = $750).

    Excess concessional contributions charge

    As the ECC are included in a person’s assessable income and taxed at marginal tax rates, they could receive a tax advantage where they have exceeded their cap because of the time delay in paying their tax liability.

    Where a person makes ECC into a super fund, there are delays in paying tax on the contributions at the marginal tax rates. The earnings from these contributions have only been taxed at 15% while in the super fund. This increases the amount held in a concessional environment, compared to the amount if it was not held in the super fund.

    Division 95 of the TAA neutralises these benefits by applying an ECC charge. Section 95-10 of Schedule 1 to the TAA makes a person liable for the ECC charge where the person:

    • has ECC for an income year
    • is liable to pay an amount of income tax (actual tax) for that income year
    • has actual tax that exceeds the amount of tax they would be liable to pay for the income year if the ECC were disregarded.

    A person will have an ECC charge where the inclusion of their ECC in their assessable income increases their tax payable. Where a person has no tax payable with the inclusion of their ECC they are not liable for an ECC charge.

    There is no discretion to remit the ECC charge.

    Example 2.3

    Jamie has taxable income of $13,000 and ECC of $2,000 for the 2014-15 income year. There is no income tax payable on Jamie’s taxable income of $13,000. There is also no income tax payable on the taxable income of $15,000 which includes the ECC. Therefore, Jamie is not liable for the ECC charge.

    End of example

    Calculating the ECC charge

    Section 95-15 of Schedule 1 to the TAA provides the amount of the ECC charge. The ECC charge is calculated on a daily compounding basis.

    The ECC charge for a day is calculated by multiplying the rate for that day by the sum of the following amounts:

    • tax on which a person is liable to pay the ECC charge
    • ECC charge on that amount from the previous days.

    There are three elements that are used in calculating the ECC charge:

    • ECC base amount
    • period
    • rate.

    The system calculates the ECC charge. The following sections explain the components of the calculation.

    ECC base amount

    The following formula can be used to determine the ECC base amount:

    A – B

    Where:

    • A – income tax payable on the taxable income including ECC, less all tax offsets (including the ECC tax offset)
    • B – income tax payable on the original taxable income less any tax offsets (not including the ECC tax offset).

    The Medicare levy and MLS are not income tax and aren’t used in the calculation. The temporary budget repair levy is income tax and is part of the calculation.

    Income tax

    The amount of income tax and the tax rate depends on the taxable income and the income year. The table below is the tax rates for Australian residents for the 2015-16 and the 2016-17 income years.

    Tax rates for Australian residents 2015–16 and 2016–17

    Taxable income

    Tax rate

    0–$18,200

    Nil

    $18,201–$37,000

    19c for each $1 over $18,200

    $37,001–$80,000

    $3,572 plus 32.5c for each $1 over $37,000

    $80,001–$180,000

    $17,547 plus 37c for each $1 over $80,000

    $180,001 and over

    $54,547 plus 45c for each $1 over $180,000

    The above rates do not include the 2% increase in income tax rate for taxable income for $180,000 as a result of the temporary budget repair levy. This affects the 2014-15, 2015-16 and 2016-17 income years.

    Refer to the tax rates for other income years. There is also a tax calculator on our website.

    ECC tax offset

    The tax offset is 15% of the ECC for an income year.

    Calculating A

    There are three steps to work out A:

    1. Calculate the income tax on the taxable income, including the ECC.

    2. Calculate the ECC tax offset and add to other tax offsets.

    3. Take the total offset amount away from the income tax amount.

    Calculating B

    Calculate the income tax on the taxable income excluding the ECC and take off any other tax offsets.

    Example 2.4

    For the 2015–16 income year, Arvind has taxable income of $80,000 and ECC totalling $25,000.

    The following formula can be used to determine the ECC base rate: A – B

    Where:

    • A – income tax payable on the taxable income including ECC less tax offsets (including the ECC tax offset).
    • B – income tax payable on the original taxable income less tax offsets (not including the ECC tax offset).

    Step 1 – calculate first part of A–income tax

    The taxable income including the ECC is $105,000 ($80,000 + $25,000).

    Income tax (not including Medicare levy or MLS) on the taxable income of $105,000 is $26,797.

    Step 2 – calculate second part of A – the tax offsets

    Arvind has no other tax offsets. The ECC tax offset is 15% of the ECC.

    $25,000 x 15% = $3,750

    Step 3 – calculate A

    $26,797 – $3,750 = $23,047

    Step 4 – calculate B

    Income tax (not including Medicare levy) on the taxable income of $80,000 is $17,547. Arvind has no other tax offsets.

    B = $17,547

    Step 5 – calculate A – B

    Calculate the ECC base amount.

    $23,047–$17,547 = $5,500

    The ECC base amount is $5,500. This amount is used in the calculation of the ECC charge.

    End of example

     

    Example 2.5

    For the 2015-16 income year, Marcelle has taxable income of $105,000 and ECC totalling $5,000. She also has a franking tax offset of $1,500.

    The following formula can be used to determine the ECC base rate: A – B

    Where:

    • A – income tax payable on the taxable income including ECC less tax offsets (including the ECC tax offset).
    • B – income tax payable on the original taxable income less tax offsets (not including the ECC tax offset).

    Step 1 – calculate first part of A – income tax

    The taxable income including the ECC is $110,000 ($105,000 + $5,000). Income tax (not including any Medicare levy or MLS) on the taxable income of $110,000 is $28,647.

    Step 2 – calculate second part of A – the tax offsets

    Marcelle has a franking tax offset of $1,500.

    The ECC tax offset is 15% of the ECC.

    $5,000 x 15% = $750

    The total tax offsets will be $2,250 ($1,500 + $750).

    Step 3 – calculate A

    $28,647 – $2,250 = $26,397

    Step 4 – calculate B

    Income tax (not including Medicare levy or MLS) on the taxable income of $105,000 is $26,797. Marcelle has a franking tax offset of $1,500.

    $26,797 – $1,500 = $25,297

    Step 5 – calculate A – B

    Calculate the ECC base amount

    $26,397 – $25,297 = $1,100

    The ECC base amount is $1,100. This amount is used in the calculation of the ECC charge.

    End of example

    Period used for calculation

    The ECC charge is calculated for the period:

    • beginning on the first day of the income year in which the contributions were made
    • ending on the day before any tax payable would be due to be paid for the first NOA for that income year.

    Example 2.6

    Marlin lodges his tax return for the 2015–16 income year on 30 September 2016.

    He is assessed with ECC and the amount is included in his taxable income. His original NOA is issued with a payment date of 21 November 2016.

    Marlin’s ECC determination is issued with the NOA and statement of account outlining the ECC charge. The ECC charge is calculated from 1 July 2015 to 20 November 2016.

    End of example

     

    Example 2.7

    Harry lodges his tax return for the 2014–15 income year on 15 October 2015. He is not assessed for ECC and his NOA is issued with a payment date of 23 November 2015.

    On 1 December 2015, a member contributions statement (MCS) is lodged by Harry’s super fund and he is assessed for ECC. The NOAA issued includes his ECC with a payment date of 16 February 2016.

    The ECC charge is calculated from the first day of the income year until the day before the first NOA is payable. Therefore, the ECC charge is calculated from 1 July 2014 to 22 November 2015.

    End of example

    Rate used for calculation

    The charge rate is determined in section 4 of the Superannuation (Excess Concessional Contributions Charge) Act 2013.

    The rate of ECC charge for a day is:

    • the base interest rate for the day
    • plus three percentage points
    • divided by the number of days in the calendar year.

    The ‘base interest rate’ is defined in section 5 of the Superannuation (Excess Concessional Contributions Charge) Act 2013 and is the 90-day bank accepted bill rate published by the Reserve Bank.

    The rate is updated quarterly, with rates for the next quarter generally announced two weeks before the start of that quarter. The ECC charge rates are the same as the shortfall interest charge (SIC) rates.

    When the ECC charge is due and payable

    A person's ECC charge is due when their tax is due. This date is listed on their first NOA for the income year.

    A person is not required to pay the ECC charge until we have provided a notice of their ECC charge (and ECC) for the income year on an ECC determination.

    Exercise 8

    Boris has taxable income of $85,000 for the 2014–15 income year and ECC of $5,000. The inclusion of his ECC increases the amount of his tax payable.

    Is the following statement true or false?

    Boris must pay the ECC charge.

    Answer 8

    True. Boris must pay the ECC charge. A person will have an ECC charge where they have ECC including it in their assessable income increases their tax payable.

    Exercise 9

    Choose the correct response.

    Chris receives a NOA for the 2013–14 income year with a payment date of 21 December 2014. He then receives a NOAA with the payment date of 15 March 2015. His ECC charge is calculated from 1 July 2013 to:

    • 15 March 2015
    • 20 December 2014
    • 14 March 2015
    • 21 December 2014.

    Answer 9

    The correct answer is 20 December 2014.

    The ECC charge is calculated from 1 July 2013 to 20 December 2014 (the day before his first NOA is payable).

    Electing to release excess concessional contributions

    Section 96-5 of Schedule 1 to the TAA outlines:

    • how much ECC can be released
    • the requirements for election
    • making further elections as a result of an unsuccessful election.

    Once a person makes an election it cannot be revoked.

    Amount that can be released

    When a person receives an ECC determination for an income year they may elect to release from their super fund an amount up to 85% of the ECC stated in the ECC determination. The amount released is capped at 85% as the remaining 15% represents the income tax liability of the super fund. The person will receive a tax offset to compensate them for this amount.

    Any released ECC for an income year does not count for non-concessional contributions purposes. Where an ECC determination is amended that increases the amount of ECC, the person may elect to release an amount not exceeding:

    • 85% of the ECC stated in the amended determination, less
    • any amount released from an earlier ECC determination for that income year.

    Electing to release the ECC allows the person to use the amount released to meet their income tax liability.

    The election

    A person may choose to release an amount of their ECC from their super funds.

    Prior to July 2015, an election form used to release a chosen amount was issued with an:

    • ECC determination
    • original NOA or NOAA
    • important information fact sheet.

    From July 2015, we no longer issue an election form. We encourage people to access the election form through their myGov account. Alternatively, an election form can be ordered through the ATO website or by phoning us. Tax agents will also be able to lodge an election form through the Portal.

    A person electing to release money from their super fund must notify us of the amount they elect to release, including the:

    • the super fund (or funds) from which the amount is to be released
    • amount to be released from each super fund.

    The amount elected to be released can be any amount up to 85% of their ECC for the corresponding income year.

    A person has the choice to:

    • have the ECC released from their super fund, or
    • leave their ECC in their super fund.

    Where a person chooses to release an amount of their ECC, the election must be:

    • in the approved form and
    • given to us within:  
      • 21 days after receiving the ECC determination or amended ECC determination, or
      • a further period allowed by the Commissioner.
       

    Releasing ECC

    Releasing the excess concessional contributions (ECC) does not result in a contribution being rejected, nor is it a return of a contribution. These contributions are still contributions for the member and the super fund, and continue to count towards:

    • satisfying an employer’s SG obligations
    • the fund’s assessable income.

    The amount of ECC released from their super fund reduces the ECC counted to determine non-concessional contributions. Amounts not released will be counted for non-concessional contributions purposes. Excess non-concessional contributions (ENCC) are first determined at the same time as any ECC. Details of the ENCC amount are included with a person’s ECC determination so that the person completely understands their situation.

    Where a person has elected to release an amount of their ECC, only the amount of ECC released from their super fund (or funds) is reduced to determine their non-concessional contributions. The amount of the reduction is equal to 100/85 of the amount released (that is, the amount released divided by 85%).

    As a result, if a person has ECC and the full 85% of their ECC for the income year is released from their super fund, their ECC will have no impact upon their non-concessional contributions. This means that a person may avoid being in a position where their ECC results in them having ENCC. It may also prevent the automatic bring-forward provision for those under 65 years old.

    Example 2.8

    Faye has $4,500 ECC and is sent:

    • a NOA, and
    • an ECC determination.

    Faye has 21 days to pay her account and the option to release up to $3,825 ($4,500 x 85%) of the ECC from one of her super funds to help pay her tax debt. Faye lodges her election through myGov and decides to release the full amount of $3,825.

    Once the election form is received we issue a release authority to her nominated fund. Faye's fund is now required to release the maximum amount available and sends $3,825 to us. We credit this amount to Faye's account. The $3,825 is grossed-up (100/85) and the grossed-up amount of $4,500 is no longer counted in Faye’s non-concessional contributions.

    End of example

     

    Example 2.9

    Carmen has $15,000 ECC and is sent:

    • a NOA
    • an ECC determination.

    Carmen has 2  days to pay her account and the option to release up to $12,750 ($15,000 x 85%) of the ECC from her super funds. Carmen lodges the election form through myGov and decides to release $4,590 from her super fund.

    Once the election form is received we issue a release authority to her nominated fund. Carmen’s fund is now required to release the maximum amount available and sends $4,590 to us. We credit this amount to Carmen's account. The $4,590 is grossed-up (100/85) and the grossed-up amount of $5,400 is no longer counted in Carmen's non-concessional contributions. However, the ECC amount of $9,600 ($15,000–$5,400) still counts towards Carmen's non-concessional contributions.

    End of example

     

    Example 2.10

    Lucy is 65 years old and receives an ECC determination showing:

    • ECC of $10,000, plus
    • an ECC charge.

    She is also informed of $155,000 non-concessional contributions (made up of $145,000 non-concessional contributions and $10,000 ECC) for the 2013–14 income year. Lucy can release up to $8,500 of her ECC ($10,000 x 85%).

    Scenario 1

    Lucy elects to release only $4,500 from her super fund. The amount of $4,500 is released from her super fund and her non-concessional contributions for the income year are reduced by $5294.12 ($4,500 ÷ 85% = $5,294.12 rounded to the nearest cent).

    As a result, Lucy’s total non-concessional contributions are $149,705.88.

    $155,000 – $5,294.12 = $149,705.88

    Lucy has not exceeded the non-concessional contributions cap for the income year.

    Scenario 2

    Lucy chooses not to release any of her ECC. This means that the ECC of $10,000 will be included in Lucy’s non concessional contributions and she will have ENCC of $5,000. As she is 65 years old, she is not eligible for the bring-forward provision and will be advised she has exceeded her non-concessional contributions cap.

    End of example

    Exercise 10

    Daniel has ECC of $20,000 and elects to release only $8,500 from his super fund. His super fund releases the $8,500 to us and the grossed-up amount of $10,000 will not be counted for non-concessional contributions purposes.

    Choose the correct response.

    How much of Daniel’s ECC will still count towards his non-concessional contributions?

    • $20,000.
    • $8,500.
    • $18,500.
    • $10,000.

    Answer 10

    The correct answer is $10,000. The grossed-up amount of $10,000 will not be counted for non-concessional contributions purposes. Therefore, only $10,000 of Daniel’s ECC will be counted in his non concessional contributions ($20,000 – $10,000 = $10,000).

    Income tax assessment

    For the 2013–14 and later income years, any ECC are included in a person’s assessable income for the income year. This inclusion is automatic and does not require a person to include it in their tax return. Including the ECC in a person’s assessable income ensures these contributions are taxed at their marginal tax rate.

    Payment date

    Section 95 20 of Schedule 1 to the TAA provides that the ECC charge is payable on the day on which the original NOA is due.

    Any MCS or self-managed super fund annual return (SAR) lodged after a NOA is issued that results in ECC or further ECC, will trigger a NOAA. Any extra ECC charge resulting from the NOAA is due 21 days after the amended determination was provided.

    The SIC will accrue from the payment date of the original NOA, until the day before the NOAA payment date. General interest charge (GIC) will accrue where the payment is not made by the payment date.

    SIC and GIC

    A person’s NOA increased by a shortfall in tax resulting from the inclusion of ECC may result in SIC being applied with the NOAA.

    Any unpaid income tax (which includes the ECC and ECC charge) after the payment date is liable for GIC.

    Shortfall interest charge

    Section 280-100 of Schedule 1 to the TAA provides that a person is liable to pay SIC where their NOA is amended to increase their income tax liability.

    The principal object of SIC is to neutralise benefits that taxpayers could otherwise receive from shortfalls of income tax, so they are not advantaged over those who pay the tax properly owing at the appropriate time.

    It applies to the tax shortfall amount from the payment date of the original NOA (or the payment date of an earlier NOAA) to the day before we issue the new NOAA.

    SIC accrues on the shortfall amount on a daily compounding basis from:

    • the payment date for payment of the earlier, understated assessment, to
    • the day before the Commissioner gives the taxpayer a NOAA.

    The SIC rate is calculated under subsection 280-105(2). It is determined by the monthly average yield of 90-day bank accepted bills (updated quarterly), plus 3%, and then divided by the number of days in the calendar year. The interest charge on the shortfall is tax deductible in the income year it is paid.

    For further information, refer to shortfall interest charge and SIC rates.

    Remission of shortfall interest charge

    Section 280-160 of Schedule 1 to the TAA provides that SIC may be remitted in full or in part where it is fair to do so.

    PS LA 2006/8 Remission of shortfall interest charge and general interest charge for shortfall periods provides guidance on the remission of SIC. The practice statement explains that full or partial remission of SIC may be right where either:

    • there were ATO delays in the issue of the NOAA
    • ATO advice or action contributed to the tax shortfall
    • payment of the tax shortfall amount is made before the NOAA is issued
    • there are special circumstances where it would be fair to do so.

    General interest charge

    Section 95-25 of Schedule 1 to the TAA provides that if an amount of ECC charge or SIC for the ECC charge remains unpaid after the payment date, GIC will accrue on the unpaid amount:

    • beginning the day when the amount was due to be paid, and
    • ending on the last day any of the following amounts remain unpaid:  
      • ECC charge
      • SIC
      • GIC on any ECC charge or SIC.
       

    Where a person does not pay their tax on time, GIC will be automatically added to the amount owed to us. The GIC is calculated on a daily compounding basis on the amount outstanding, and added to the account periodically. A person can generally claim a tax deduction for GIC in the income year it is incurred.

    For further information, refer to general interest charge and GIC rates.

    Example 2.11

    Mathew lodges his tax return for the 2014–15 income year and receives a NOA with a payment date of 21 November 2015. On 30 November 2015, we determine Mathew has ECC for the 2014–15 income year. We provide Mathew with an ECC determination and NOAA on 30 November 2015 with a payment date of 21 December 2015.

    As Mathew has ECC in the 2014–15 income year, he must also pay the ECC charge. This ECC charge applies from 1 July 2014 (the first day of the 2014–15 income year) until the day before his first NOA for the income year was due – 20 November 2015.

    Mathew must also pay SIC on the shortfall between the amount he originally paid and the amount of tax identified in his NOAA. The SIC is calculated for the period beginning 21 November 2015 (the day his original NOA was due) until 20 December 2015 (the day before his NOAA is due).

    If Mathew does not pay on or by 21 December 2015, GIC will accrue on any unpaid amount of income tax (which includes the ECC and ECC charge) and SIC.

    End of example

    ECC scenarios

    Scenario 1 – ECC included in the NOA

    Background

    In the 2013–14 income year, Mary:

    • is 51 years old
    • salary sacrifices money to super and has concessional contributions of $35,000
    • has a concessional contributions cap of $25,000
    • makes $150,000 non-concessional contributions
    • has a non-concessional contributions cap of $150,000
    • has assessable income of $70,000
    • has no tax offsets.

    Income tax NOA

    When Mary lodges her tax return, her super fund has lodged their MCS. Mary is assessed with ECC of $10,000 and on 30 October 2014 is sent:

    • a NOA with a payment date of 21 November 2014
    • an ECC determination and fact sheet.

    Mary’s NOA issues with a tax liability of $3,216. This amount includes the additional tax for her ECC, ECC charge, ECC tax offset and pay-as-you-go credits.

    Tax offset

    Mary will receive a non-refundable tax offset of $1,500 equal to 15% of her ECC amount of $10,000. This decreased her tax liability by $1,500.

    $10,000 x 15% = $1,500

    ECC charge

    Mary’s ECC charge will be calculated on a compound basis using the applicable rates for each quarter in the period, based on the amount of $1,750 for the period from 1 July 2013 to 20 November 2014.

    Based on ECC charge rates, the total ECC charge would be $147.64.

    Election

    Mary can choose to release up to $8,500 ($10,000 x 85%) of the ECC which can be used to pay her tax liability. Mary has 21 days from receiving the ECC determination to return the election form to us. Mary completes the election form within time and elects to release the full amount of $8,500.

    Release authority

    Once a valid election form is received, we then issue a release authority to her nominated fund. Mary's fund is now required to release $8,500 or if that amount is not available, the maximum amount available to us within 7 days of receipt. Mary’s fund is not required to amend the contributions originally reported to us.

    On 16 December 2014, the release authority is returned with an amount of $8,500 from Mary’s fund, which we credit to Mary's account.

    General interest charge

    Mary does not pay her income tax liability by the payment date of 21 November 2014. Therefore, GIC accrues from 21 November 2014 to 15 December 2014 (the day before her income tax liability is paid).

    Refund

    The released amount of $8,500 is applied to all of Mary’s liabilities with the ATO and any other Commonwealth agencies, with the remainder (if any) refunded to her.

    Effect on non-concessional contributions

    The $8,500 is grossed-up (100/85) and the amount of $10,000 is no longer counted in Mary's non-concessional contributions. Therefore, Mary’s non concessional contributions for the 2013–14 income year are $150,000.

    Mary has not triggered the bring-forward provision in the 2013–14 income year.

    Scenario 2 – ECC included in the NOAA

    Background

    In the 2014–15 income year, Nicholas:

    • is 60 years old
    • has concessional contributions of $38,000
    • has a concessional contributions cap of $35,000
    • makes $180,000 non-concessional contributions
    • has a non-concessional contributions cap of $180,000
    • has assessable income of $100,000
    • has a franking tax offset of $750
    • has health insurance and is not liable for the MLS.

    Income tax NOA

    Nicholas lodges his tax return for the 2014–15 income year and receives a NOA with a payment date of 23 November 2015. At this stage, his super fund has not lodged their MCS and he has no ECC determined.

    Notice of amended assessment

    Nicholas’ super fund lodges their MCS and on 30 November 2015 we determine Nicholas has ECC of $3,000 for the 2014–15 income year. We issue him with:

    • a NOAA which has a payment date of 21 December 2015
    • an ECC determination and fact sheet.

    Nicholas’ NOAA issues with a tax liability of $1,459. This amount includes the ECC charge, SIC, ECC tax offset and the shortfall tax relating to the inclusion of his ECC.

    Tax offset

    Nicholas will receive a non-refundable tax offset equal to 15% of his ECC amount of $3,000. This decreased his tax liability by $450 ($3,000 x 15%=$450).

    ECC charge

    Nicholas’ ECC charge will be calculated on a compounding basis using the ECC charge rates applicable for the relevant quarters. This calculation is based on the amount of $660 from 1 July 2014 to 22 November 2015 (the day before the original NOA payment date).

    Based on ECC charge rates, the total ECC charge would be $54.61.

    Election

    Nicholas has the option to release up to $2,550 ($3,000 x 85%) of the ECC.

    He has 21 days from receiving the ECC determination to complete the election form. On 7 December 2015, Nicholas completes the election form through myGov and elects to only release $1,530 of the allowable amount.

    Release authority

    Once we receive his valid election form is received, we issue a release authority to his nominated fund. Nicholas’ fund is now required to release either the full amount of $1,530, or the maximum amount available to us within seven days of receipt. Nicholas’ fund is not required to amend the contributions originally reported to us. On 18 December 2015, we receive the amount of $1,530 from the fund which we credit to Nicholas’ account.

    Shortfall interest charge

    Nicholas is liable for SIC on the shortfall between the amount he originally paid and the amount of tax identified in his NOAA. The SIC is calculated for the period beginning 23 November 2015 (the day his original NOA was due) until 29 November 2015 (the day before his NOAA issued).

    General interest charge

    If Nicholas does not pay his liability on or by 21 December 2015, GIC will accrue on any unpaid amount of tax liability and SIC.

    Effect on non-concessional contributions

    The $1,530 is grossed-up (100/85) and $1,800 is no longer counted in Nicholas’ non-concessional contributions. The remaining ECC of $1,200 ($3,000 – $1,800) is still counted in Nicholas’ non concessional contributions for the 201415 income year, making his total $181,200 ($180,000 + $1,200).

    As Nicholas has non-concessional contributions which exceed his $180,000 cap, Nicholas has triggered the bring-forward provision in the 2014–15 income year.

      Last modified: 28 Mar 2018QC 50732