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  • Refund of excess non-concessional contributions

    When a person exceeds their non-concessional contributions cap they are issued with an ENCC determination and can elect how the ENCC are treated.

    A person can elect to:

    • release the total release amount (as shown in the ENCC determination) and 85% of the associated earnings
    • pay ENCC tax on the ENCC
    • advise us that the value of their super interests is nil.

    The associated earnings amount is then included in a person’s assessable income and they are entitled to a tax offset.

    Once we are satisfied that a person’s value of their super interests is nil we issue a direction.

    A person will be liable for ENCC tax if they exceeded their cap for the income year and the total release amount wasn’t released from their super interest (unless they advise us that the value of their super interests is nil). If the amount released from the fund or funds is equal to or greater than the ENCC amount, they will not be liable for ENCC tax.

    Excess non-concessional contributions determination

    To determine the amount of ENCC, we use:

    • details of contributions received by super funds during the income year
    • the person’s date of birth
    • the amount of the person’s ECC not released.

    An ENCC determination will not issue until after the ECC election’s due date, if any, has passed.

    Where a person has ENCC as outlined in subsection 97-25(1) of Schedule 1 to the TAA, we must make a written determination stating the amount of the person’s:

    • ENCC
    • associated earnings
    • total release amount.

    As outlined in subsection 97-25(2) of Schedule 1 to the TAA, this determination is called an ‘excess non-concessional contributions determination’.

    Associated earnings

    A person will have earned an amount on the ENCC while it was invested in super. An approximation is used for the ATO calculation of the associated earnings amount as it would be too complex to work out the actual earnings of the ENCC. The ATO system calculates the amount of associated earnings.

    An amount of associated earnings is calculated in line with section 97-30 in Schedule 1 to the TAA and included in the ENCC determination. The associated earnings period starts on the first day of the income year that the ENCC was made (contributions year) and ends on the day that the first ENCC determination is made for the contributions year.

    The amount is calculated by multiplying a proxy rate by the ENCC, plus the sum of earlier daily proxy rate (compounding interest) as show in the below formula:

    Proxy rate x (excess + sum of earlier daily proxy amounts)

    The amount of associated earnings is rounded down to the nearest dollar.

    The proxy rate is based on an average of the GIC rate for the four quarters for the contributions year. As GIC is on average higher than average super fund returns, it incorporates a small disincentive for people not to exceed their non-concessional contribution caps.

    The proxy rate for the 2015–16 income year is 9.20% with a daily rate of 0.02513661%. Subsection 97-30(2) in Schedule 1 to the TAA allows the Treasurer to specify an alternative proxy rate that is lower than the default rate. This could be utilised where average funds have made significant losses in an income year, for instance, an event similar to the global financial crisis.

    Example 3.1

    Belinda exceeds her non-concessional contributions cap for the 2013–14 income year by $100,000. Belinda’s ENCC determination is made on 1 November 2015 and issued to her. The amount of associated earnings is calculated as:
    •  0.02646575% x ($100,000 + sum of the earlier daily proxy amounts) for 854 days (1 July 2013 to 1 November 2015)
    The amount of Belinda’s associated earnings is $25,356 (rounded down to the nearest dollar).
    End of example

    Total release amount

    The total release amount stated in the determination is the amount of ENCC plus 85% of the associated earnings. Only 85% of the associated earnings amount must be released, as the super fund may already have included the earnings on investments made with the excess contributions in the fund’s assessable income and been taxed on those earnings (at a rate of up to 15%).

    Paragraph 97-25(1)(c) in Schedule 1 to the TAA provides the formula for the total release amount:

    Amount of ENCC + (0.85 x amount of associated earnings)

    Example 3.2

    Following on with Belinda, her total release amount is calculated by the following formula:

    Amount of ENCC + (0.85 x amount of associated earnings)

    $100,000 + (0.85 x $13,814)

    $100,000 + $11,741.90 = $111,741.90

    Belinda receives an ENCC determination for the 2013–14 income year with the following information:

    • ENCC of $100,000
    • associated earnings of $ 13,814
    • the total release amount of $111,741.90.
    End of example

    Excess non-concessional contributions election

    From July 2015, the election form is not issued with the ENCC determination, but people are informed of their election options and how to make their election.

    We encourage people to access the election form through their myGov account in the first instance. Alternatively, an election form can be ordered through the ATO website or by phoning us. Tax agents can access the election form for their clients through the portal.

    Under subsection 96-7(5) of Schedule 1 to the TAA, an election must be

    • in the approved form
    • returned to us within 60 days of the date of issue of the ENCC determination, or a further period allowed by us.

    An election made for ENCC purposes cannot be revoked by the client but may be revoked by the Commissioner. Section 96-7 of Schedule 1 to the TAA outlines that a person who is issued with an ENCC determination can elect:

    • to release the total release amount stated in the determination
    • not to release any amount because their super interest is nil, or
    • not to release any amount from super for another reason.

    If a person does not make an election within the timeframe, no amount can be released from super. The ENCC is treated as if they had elected not to release an amount from super for another reason and will be liable for ENCC tax.

    Example 3.3

    Belinda receives her determination and her election options are:

    Option 1 – Release the money from her super fund

    Lodge an election form to release $111,741.90 from her super fund and have her 2013–14 income tax assessment amended to include the associated earnings of $13,814.

    Option 2 – Pay ENCC tax (by not releasing)

    Lodge an election form to pay ENCC tax on $100,000.

    Note: Belinda must select this option if her only superannuation interest is held in a defined benefit fund or a non-commutable superannuation income stream, and the fund can’t or won’t voluntarily release it.

    Option 3 – Advise the Commissioner that she has no money in super

    Complete an election form to advise us that she has no amounts or assets in super. If accepted, we will amend Belinda’s 2013–14 income tax assessment to include the associated earnings amount of $13,184.

    End of example

    Electing to release

    A person can elect to release the total release amount: that is, the amount of ENCC plus 85% of the associated earnings. If this option is chosen, the total release amount must be released from super to the maximum extent possible.

    A person electing to release money from their super fund must notify us of the:

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

    We then send a release authority to the nominated super funds.

    To reduce any tax benefit obtained by a person exceeding the cap, once the election to release the full amount from super is made, the associated earnings are:

    • included in the assessable income for the income year
    • taxed at marginal rates.

    Section 292-30 of the ITAA 1997 provides the person with a non-refundable tax-offset equal to 15% of the associated earnings amount included in their assessable income. The ENCC tax offset is rounded up to the nearest whole dollar.

    Example 3.4

    Following on with Belinda, she has received an ENCC determination for the 2015–16 income year with the following information:

    • ENCC of $100,000
    • associated earnings of $13,184
    • the total of the amount that can be released $111,741.90.

    $100,000 + (85% x $13,184) = $111.741.90.

    She makes a valid election to release the total release amount of $111,741.90. The associated earnings of $13,184 are included in her assessable income for the 2015–16 income year. She also receives a tax offset of $2073 ($13,814 x 15% rounded up). The amount is released from her super fund.

    End of example

    Releasing less than the total release amount

    Where a person has a super interest valued at less than the total release amount they may still elect to release the total release amount. Once we receive a valid election to release the total release amount we must issue a release authority to the person’s specified super fund (or funds) for the full amount.

    Where a super fund releases the maximum amount that can be released, and it isn’t the full total release amount, we notify the person that the full amount has not been successfully released and offer the following options:

    • nominate another super fund to release the remaining amount
    • pay ENCC tax
    • elect not to release the remaining amount because the value of all of their super interests is now nil.

    Direction that super interest is nil

    Section 292-467 of the ITAA 1997 outlines that we must provide a direction in writing where:

    • a person makes an election that they have no amount in super interests
    • we are satisfied that the value of all the person’s super interests are nil.

    Providing a direction means that the person no longer has ENCC for the contribution year and won’t be subject to ENCC tax for the amount. Subsection 33(3) of the Acts Interpretation Act 1901 allows us to revoke the direction: for instance, if we receive information after making the original direction from a super fund that holds a super interest for the person.

    The direction is separate and in addition to the existing Commissioner’s discretion under section 292-465 of the ITAA 1997, to disregard a person’s non-concessional contributions or reallocate them to a different income year in special circumstances, consistent with the object of Division 292.

    Once a direction is issued, the associated earnings are included in the person’s assessable income for the income year and the person is entitled to the ENCC tax offset.

    Example 3.5

    Paul exceeds his non-concessional contributions cap for the 2014–15 income year and is issued an ENCC determination with:

    • ENCC of $107,000
    • associated earnings of $13,786
    • a total release amount of $118,718.10 ($107,000 + (85% x $13,786) = $118,718.10).

    At this time, Paul knows that the total value of all of his super interests is less than the total release amount of $118,718.10. Paul elects to release the total release amount stated in the determination of $118,718.10, specifying the only super fund that holds an interest for him.

    The associated earnings of $13,786 is included in his assessable income for the 2014–15 income year. He also receives a tax offset of $2,068 ($13,786 x15% rounded up). We issue a release authority to Paul’s specified super fund for $118,718.10. The super fund releases $60,000 to Paul, informs both Paul and us of the amount released and that he has no further super interest with them.

    We notify Paul that the full amount has not been successfully released and request Paul to make a further election and either:

    • nominate another super fund for release of the remaining amount of $58,718.10 ($118,718.10–$60,000)
    • pay ENCC tax on the remaining amount of $47,000 ($107,000–$60,000)
    • advise us that the value of all of his super interests are now nil.

    Paul elects not to release the unpaid amount because the value of his remaining super interests is now nil. Once satisfied, we issue a direction to disregard ENCC of $47,000 and the associated earnings of $13,786 in his assessable income for the 2014–15 income year remains unchanged.

    End of example

    Unable to release further super interests

    Where the super fund has released the maximum amount that it can release and the person has other super interests but cannot release them, they can elect to pay ENCC tax on the unreleased ENCC amount. If they don’t make a further election within the election timeframe we will issue an ENCC tax assessment and they will pay ENCC tax on the unreleased ENCC amount.

    This will result in:

    • an ENCC tax assessment being issued for the income year on the unreleased ENCC amount
    • an amendment to the NOA or NOAA to reduce the associated earnings and tax offset based on the ENCC released.

    Example 3.6

    Emile exceeds his non-concessional contributions cap for the 2014–15 income year and is issued an ENCC determination with:

    • ENCC of $50,000
    • associated earnings of $6,442
    • a total release amount of $55,475.70 ($50,000 + (85% x $6,442) = $55,475.70).

    Emile elects to release the total release amount stated in the determination of $55,475.70 specifying the super fund that holds an interest for him. The associated earnings of $6,442 are included in his assessable income for the 2014–15 income year.

    He also receives a tax offset of $967 ($6,442 x 15% rounded up). We issue a release authority to Emile’s specified super fund for $55,475.70. The super fund releases $30,000 to Emile and informs both Emile and us of the amount released and that his remaining super interest is in a defined benefit account. We notify Emile that the full amount has not been successfully released and request him to either:

    • nominate another super fund for release of the remaining amount of $25,475.70 ($55,475.70–$30,000)
    • pay ENCC tax on the remaining amount of $20,000 ($50,000–$30,000), or
    • advise us that the value of all of his super interests are now nil.

    Emile elects to pay ENCC tax as he still has super interests but is unable to release any further amount.

    As a result:

    • the associated earnings of $6,442 included in his assessable income for the 2014-15 income year is reduced to $3,865.
    • his tax offset is reduced to $580 ($3,865 x 15% rounded up), and
    • he will receive an ENCC tax assessment on the ENCC of $20,000.00 for the unreleased ENCC amount.
    End of example

    Electing not to release

    Factors which may affect a person to choose not to release an amount from super are:

    • they no longer have an amount held in super to release
    • they have commenced an income stream so the super fund won’t or can’t release the amount, or
    • they only have super interests in a defined benefit fund which can’t release the amount.

    Electing not to release when the super interest is nil

    A person may elect not to release an amount from super because the value of all of their super interests is nil. This may occur, for example, if the person has met a condition of release and has received their entire super as a superannuation lump sum benefit before we issue the ENCC determination. If the person does in fact have money in super but still makes this election, the election is invalid and taken not to have been made as noted in subsection 96-7(1) of Schedule 1 to the TAA.

    Once satisfied the value of the person’s super interest are nil, we:

    • issue a direction
    • include the associated earnings in the person’s assessable income for the income year
    • the person is entitled to the ENCC tax offset.

    Example 3.7

    In the 2014–15 income year, Gina exceeds her non-concessional contributions cap and is issued an ENCC determination showing the following:

    • ENCC of $55,000
    • associated earnings of $7,763
    • total release amount of $61,598.55 ($55,000 + (0.85 x $7,763)).

    Before receiving the ENCC determination, Gina was paid a superannuation lump sum benefit of her entire balance of her only super interest. Gina makes a valid election to not release any amount from super as the value of her superannuation interests is nil. Once we are satisfied that the total value of all Gina’s super interests is nil, we notify her that we have made a direction.

    As a result of this Gina does not have an ENCC tax liability for the 2014-15 income year. Her associated earnings of $7,763 are included in Gina’s assessable income for the 2014-15 income year and taxed at her marginal tax rate. She is entitled to a non-refundable tax-offset of $1,165 (15% x $7,763) and rounded up to the nearest whole dollar).

    End of example

    Electing not to release when there is a super interest

    A person who has commenced a super pension or income stream has a super interest and is not taken to have super interests with a value of nil. This is regardless of whether the pension or income stream can be commuted in order to pay a lump sum. This is also regardless of whether such a commutation (or partial commutation) in order to release an amount proves problematic or otherwise undesirable for the person or the super fund.

    A person who has only a defined benefit interest is also taken to have a super interest with a value greater than nil, regardless of whether or not the super fund can release an amount from the interest in line with a release authority.

    Where a person cannot release money from their super they must elect not to release the total release amount and pay ENCC tax. Once we receive a valid election to not release an amount from super (or they haven’t made an election at all within the timeframe) we will issue the person with an ENCC tax assessment for the income year.

    Excess non-concessional contributions tax assessment

    A person has ENCC for an income year if:

    • they receive one or more ENCC determinations for that income year
    • the excess amount stated in the most recent determination exceeds the amount released as a result of those determinations
    • a direction that the value of super interests is nil has not been issued.

    When a person has ENCC for an income year, we must issue an ENCC tax assessment for the income year showing the amount of:

    • ENCC
    • ENCC tax which the person is liable to pay.

    The ENCC tax assessment will issue with a compulsory release authority (CRA). The tax is imposed on the person who must withdraw an amount from their super fund using a CRA equal to the tax liability.

    ENCC are taxed at a rate of 46.5% for the 2013–14 income year and 47% for the 2014–15 and later income years, in line with section 5 of the Superannuation (Excess Non-Concessional Contributions Tax) Act 2007 (ENCCT Act). The temporary budget repair levy in subsection 6(2) of the ENCCT Act increased the rate to 49%. The temporary budget repair levy affects the 2014–15, 2015–16 and 2016–17 income years.

    Example 3.8

    Dennis has ENCC of $90,000 for the 2013–14 income year and elects not to release the total release amount from super as his only super interest is in a non-commutable superannuation income stream. He is sent an ENCC tax assessment for $41,850 ($90,000 x 46.5%) and a CRA.

    End of example

     

    Example 3.9

    Harley has ENCC of $145,000 for the 2014–15 income year and elects not to release the total release amount from super as his only super interest is in a defined benefit fund. He is sent an ENCC tax assessment for $71,050 ($145,000 x 49%) and a CRA.

    End of example

    95 percent limit

    Subsection 6(3) of the ENCCT Act adjusts the rate of ENCC tax if a person has ECC that count as non-concessional contributions. It states that the percentage payable on a person’s ECC for temporary budget repair levy year should not exceed 95% on their:

    • income tax
    • ENCC tax

    This subsection would only apply to a person with a taxable income of $180,000 or more who didn’t choose to release 85% of their ECC. The ENCC tax would be reduced to 48% in the 2014–15 income year for the concessional component.

    Example 3.10

    The Medicare levy and MLS isn’t included in this calculation as it is not imposed under income tax. The temporary budget repair levy is included in this calculation.

    Hue is 65 years old and receives an ECC determination showing $10,000 ECC plus an ECC charge. She is also informed of $185,000 non-concessional contributions for the 2014–15 income year (consisting of $10,000 ECC and $175,000 non-concessional contributions).

    Hue chooses not to release any of her ECC. The ECC is included in her assessable income regardless of whether she releases it.

    As Hue does not release her ECC her non-concessional contributions are not reduced and she has ENCC of $5,000 as she has exceeded her non-concessional contributions cap of $180,000. As she is 65 years old, she is not eligible for the bring forward provision and receives an ENCC determination.

    As Hue‘s taxable income is over $180,000 her income is taxed at 45% plus 2% extra for the temporary budget repair levy. This means that the concessional component of her ENCC of $5,000 will be taxed at 47% in her assessable income.

    Hue chooses not to release her total release amount from super and we issue her an ENCC tax assessment. The ENCC tax rate is 49% for the 2014–15 income year which would mean the $5,000 concessional component would be taxed at 96% (47% + 49%). So that the tax on her concessional component of her ENCC does not exceed 95%, the rate of ENCC tax is reduced to 48%.

    For ease of administration, a policy has been implemented to only charge 46% on the concessional component of ENCC regardless of taxable income in the temporary budget repair levy income years.

    End of example

    Payment

    The payment date for the ENCC tax assessment is consistent with other income tax liabilities. Section 292-385 of the ITAA 1997 provides that the ENCC tax assessed for a person for an income year is due at the end of the 21 days we give the person their ENCC tax assessment.

    A person must withdraw an amount equal to their ENCC tax liability from a super fund they hold in a complying super plan by providing the CRA to the super fund (or funds) within 21 days after the issue date of the release authority.

    The CRA does not have to be presented to the super fund that received the ENCC for the relevant income year. The amount can be released from one or more super funds but the total must not exceed the CRA amount.

    If a valid CRA has been given to a super fund, the fund must pay the required amount to the person or us within 30 days after receiving the CRA under subsection 292-415(1) of the ITAA 1997.

    As a fund has 30 days from the date of receipt of the CRA to pay the money, the person may not have access to the amount before the liability is due and payable.

    GIC and remission

    Under section 292-390 of the ITAA 1997, a person must pay GIC if the ENCC tax assessment remains unpaid after the time by which it is due and payable. GIC is calculated in line with Part IIA of the TAA.

    Despite the legislative timeframes for the CRA to be actioned, the ENCC tax liability is due and payable 21 days after the ENCC tax assessment is given. In effect, the timeframes potentially expose a person to GIC even if they, and the super fund, comply with the CRA requirements.

    Section 255-10 of Schedule 1 to the TAA provides us with the power to defer the time at which an amount of a tax-related liability is, or would become, due and payable, having regard to the person’s circumstances.

    Section 8AAG of the TAA provides that we have power to remit all or a part of the GIC payable by a person.

    GIC may be remitted in full where payment is received after the payment date provided that:

    • the person demonstrates that the CRA was forwarded to their super fund (or funds) within 21 days
    • their super fund (or super funds) paid the released amount to us within a reasonable time of the release of the money from the super fund.

    Where the person is also a trustee of the super fund, remission may not be appropriate when the delay is due to the fund’s failure to release within the required timeframe.

    Where payment is received after the payment date and the person directly or indirectly contributed to the delay, partial remission of GIC may be appropriate depending on whether the person has taken steps to mitigate the circumstances causing the delay.

    Exercise 12

    Select the correct response.

    Jack receives an ENCC determination showing ENCC of $45,000 and associated earnings of $2,500. His total release amount will be:

    • $47,500
    • $2,125
    • $47,125
    • $38,250.

    Answer 12

    The correct answer is (c). Total release amount is calculated with the following formula:

    • Amount of ENCC + (0.85 x amount of associated earnings)  
      • $45,000 + (0.85 x $2,500)
      • $45,000 + $2,125=$47,125.
       

    Exercise 13

    Select the correct response.

    We can make a direction where a person doesn’t release the full total release amount from their super fund because:

    • their super interest is in a defined benefit fund.
    • their super interest is in a non-commutable income stream.
    • they don’t want to release it.
    • the value of their super interest is nil.

    Answer 13

    The correct answer is that the value of their super interest is nil. We must provide a direction in writing where:

    • a person makes an election that they have no amount in super interests
    • we are satisfied that the value of all the person’s super interests are nil.

    Exercise 14

    Is the following statement true or false?

    If a person elects not to release the total release amount from their super interests then they will pay ENCC tax on the total release amount.

    Answer 14

    False. ENCC tax is calculated on the excess non-concessional contributions not the total release amount.

    Excess non-concessional contributions scenario

    Background

    In the 2014–15 income year, Reginald:

    • is 60 years old
    • has a non-concessional contributions cap of $180,000 ($540,000 if he triggers the bring forward provisions)
    • makes non-concessional contributions totalling $640,000 (exceeding his non-concessional contributions cap by $100,000)
    • has two super funds:
    • Red super fund with a balance of $4,200
    • Blue super fund with a balance of $975,000
    • has lodged his income tax return
    • has assessable income of $140,000.

    ENCC determination

    After all the information has been received, we determine Reginald has ENCC of $100,000 and we issue an ENCC determination stating:

    • an ENCC amount of $100,000
    • an associated earnings amount of $19,000
    • a total release amount of $116,150 ($100,000 plus 85% of the associated earnings amount of $19,000).

    ENCC election

    Reginald has 60 days from the issue date of the determination to lodge an election.

    His three options are:

    1. Release the money from super

    2. Pay ENCC tax on the ENCC

    3. Advise the ATO he has no money in super.

    Option 1

    Let’s look at what happens if Reginald chooses option 1 – Release the money from super.

    Reginald logs onto his myGov and chooses option 1. This means that he elects to release $116,150 from his super and have the associated earnings of $19,000 included in his assessable income.

    He nominates to release:

    • $4,200 from Red super fund
    • $111,950 from Blue super fund.

    He ticks the declaration and submits the election.

    After receiving the valid election, we send ENCC release authorities to:

    • Red super fund for $4,200
    • Blue super fund for $111,950.

    We also add Reginald’s associated earnings amount of $19,000 to his assessable income. We send a NOAA with:

    • amended taxable income of $159,000 ($140,000 + $19,000)
    • a non-refundable tax-offset of $2,850 (15% of $19,000).

    The super funds each have 21 days to action the ENCC release authority.

    Both super funds pay Reginald the full amount totalling $116,150 in compliance with the release authority and notify him and us.

    Option 2

    Let’s look at what happens if Reginald chooses option 2 – pay excess non-concessional contributions tax.

    Reginald logs onto his myGov account and chooses option 2. This means that he elects not to release the $116,150 from his super.

    He ticks the declaration and submits the election.

    After receiving the valid election, we issue Reginald with:

    • an ENCC tax assessment for $49,000 (49% of $100,000) due 21 days from the date of issue
    • a CRA which he must give to his super fund within 21 days to release $49,000 from his super.

    Reginald sends a CRA to:

    • Red super fund for $4,200
    • Blue super fund for $44,800.

    He requests that the super funds pay him directly. The super funds each have 30 days to action the CRA. Reginald pays his ENCC tax assessment of $49,000 by the due date. Both super funds pay Reginald the full amount totalling $49,000 in compliance with the CRA and notify him and us.

    Option 3

    Let’s look at what happens if Reginald chooses option 3 – advise us that he has no money in super.

    Before receiving the ENCC determination Reginald was paid two superannuation lump sum benefits for the entire balance of his super. He has no super interests in any fund.

    Reginald logs onto his myGov and chooses option 3. This means that he elects to have the associated earnings of $19,000 included in his assessable income.

    After receiving the valid election, we verify that he has no super interests and issue a direction.

    We also add Reginald’s associated earnings amount of $19,000 to his assessable income. We send a NOAA with:

    • amended taxable income of $159,000 ($140,000 + $19,000)
    • a non-refundable tax-offset of $2,850 (15% of $19,000).

    If Reginald does not choose any option

    Let’s look at what happens if Reginald does not make a valid election within 60 days of the determination letter issue date.

    The result will be the same as if he chose option 2.

    We issue Reginald with:

    • an ENCC tax assessment for $49,000 (49% of $100,000) due 21 days from the date of issue
    • a CRA which he must give to his super fund within 21 days to release $49,000 from his super.
      Last modified: 28 Mar 2018QC 50732