House of Representatives

Tax Laws Amendment (Simplified Superannuation) Bill 2006

Superannuation (Excess Concessional Contributions Tax) Bill 2006

Superannuation (Excess Concessional Contributions Tax) Act 2007

Superannuation (Excess Non-concessional Contributions Tax) Bill 2006

Superannuation (Excess Non-concessional Contributions Tax) Act 2007

Superannuation (Excess Untaxed Roll-over Amounts Tax) Bill 2006

Superannuation (Excess Untaxed Roll-over Amounts Tax) Act 2007

Superannuation (Departing Australia Superannuation Payments Tax) Bill 2006

Superannuation (Departing Australia Superannuation Payments Tax) Act 2007

Superannuation (Self Managed Superannuation Funds) Supervisory Levy Amendment Bill 2006

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello MP)

Chapter 1 - Contribution rules

Outline of chapter

1.1 Schedule 1 to this Bill provides tax concessions for contributions to superannuation, imposes tax on contributions in excess of specified thresholds and details the administrative arrangements for excess contributions tax. The tax will be introduced in the Superannuation (Excess Concessional Contributions Tax) Act 2006 and the Superannuation (Excess Non-concessional Contributions Tax) Act 2006 to ensure each Bill deals with a separate object of taxation.

1.2 All legislative amendments are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise indicated.

Context of amendments

1.3 Currently, employer contributions (ie, through superannuation guarantee (SG) and salary sacrifice arrangements) are subject to tax in the superannuation fund. Employers can claim a tax deduction for these contributions up to the employee's age-based deduction limits.

1.4 Taxable contributions include both deductible and undeducted employer contributions. An example of an undeducted employer contribution is where an employer makes a contribution above an individual's age-based limit.

1.5 Personal contributions are also subject to tax when they are deductible, for example when made by self-employed individuals and certain other eligible persons. A full deduction is currently available for the first $5,000 contributed to superannuation and a deduction is available for 75 per cent of the remaining amount up to a maximum deduction equal to the individual's age-based limit.

1.6 Some other less common contributions to superannuation (ie, those made by a friend) are also subject to tax.

1.7 These contributions are currently referred to as taxable contributions but will be referred to in this Bill as assessable contributions. Under the current law, and in this Bill, these contributions are, and will be, included in the assessable income of the superannuation provider and subject to the applicable rate of tax (for complying funds this rate is 15 per cent).

1.8 Currently, personal contributions for which a tax deduction is not claimed are commonly referred to as undeducted (or post-tax) contributions. However, in this Bill they will be referred to as non-concessional contributions. Under the current law, and in this Bill, these contributions are not, and will not be, included in the assessable income of the superannuation provider. Currently, there are also no limits on the amount of undeducted contributions that can be made in a year.

Summary of new law

1.9 The object of this Schedule is to ensure that the amount of concessionally taxed superannuation benefits that a person receives results from superannuation contributions that have been made gradually over the course of the person's life.

1.10 From 1 July 2007, employers will be entitled to a full deduction for all contributions to superannuation on behalf of their employees provided certain conditions are met. In addition, the self employed (and other eligible individuals) will also be entitled to a full deduction. That is, the limiting of the deduction for personal contributions to 75 per cent of the contribution above $5,000 up to the person's age-based limits will be abolished.

1.11 The removal of age-based deduction limits, reasonable benefit limits (RBLs) and tax on superannuation benefits from taxed funds for people 60 and over will increase the concessions provided to superannuation. These changes, in conjunction with the continuing tax exemption provided for income from superannuation assets supporting a pension, will make superannuation an attractive vehicle for retaining assets to minimise tax. There will be an incentive for people to transfer income producing assets currently held outside superannuation to the concessionally taxed superannuation system.

1.12 To ensure superannuation taxation concessions are targeted appropriately, limits will be placed on the amount of superannuation contributions a person can make that receive concessional treatment. In addition, this Bill replaces the current tax arrangements for deductible contributions with a streamlined set of rules.

Concessional contributions

1.13 From 1 July 2007, the amount of concessional (generally assessable) contributions that will benefit from the concessional tax treatment will be capped at $50,000 per person per year.

1.14 Contributions in excess of this cap will be taxed at an additional 31.5 per cent. This tax will be imposed on the individual, who will be able to withdraw from their superannuation fund an amount equal to their tax liability.

1.15 A five year transitional cap of $100,000 per person per year (for the financial years 2007-08 to 2011-12) will apply for people who are aged 50 and over on the last day of a financial year in that period.

Non-concessional contributions

1.16 A cap of $150,000 a year on the amount of non-concessional (generally undeducted) contributions a person can make will apply from 1 July 2007.

1.17 As a concession, to accommodate larger contributions, people under age 65 will be able to bring forward future entitlements to two years worth of contributions, giving them a cap of $450,000 over three years.

1.18 Non-concessional contributions in excess of a person's cap will be taxed at 46.5 per cent. This tax will be imposed on the individual, who must withdraw an amount from their superannuation fund equal to their tax liability.

1.19 Certain contributions arising from payments for personal injuries that result in permanent incapacity and amounts of up to a lifetime indexed limit of $1 million from the disposal of qualifying small business assets will not be counted towards the cap on non-concessional contributions.

1.20 However, as an integrity measure, excess concessional contributions will also be counted towards the cap on non-concessional contributions.

1.21 Transitional arrangements will apply to non-concessional contributions made between 10 May 2006 and 30 June 2007. This includes a cap of $1 million for this period for anyone eligible to contribute (eg, those aged 65 to 74 who satisfy the work test).

Comparison of key features of new law and current law

New law Current law
Deductible contributions
Full deductibility for both employers and those who qualify for deductions for personal contributions.
A cap of $50,000 per year on concessional contributions for all ages (with a five year transitional cap of $100,000 per year for people aged 50 and over).
Individuals will be subject to tax on contributions in excess of these caps at an additional 31.5 per cent.
Employers receive a full tax deduction on amounts up to the employee's indexed age based limits. For 2006-07 these are:
Age                   Deduction limit
Under 35                 $15,260 p.a.
35 to 49                 $42,385 p.a.
50 and over                   $105,113 p.a.
The self-employed (and other eligible persons) receive a full deduction for the first $5,000 of contributions and a 75 per cent deduction on amounts above this up to a maximum deduction equal to the age-based limit.
Other assessable (taxable) contributions
Contribution made on behalf of someone else but no deduction is allowed to the contributor and not excluded from being assessable contributions.
Included in the $50,000 on concessional contributions ($100,000 transitional cap for people aged 50 and over) and contributions in excess are taxed as above.
Contribution made on behalf of someone else but no deduction is allowed to the contributor and not excluded from being taxable contributions.

Non-concessional contributions and amounts (including undeducted contributions)

New law Current law
A cap on non-concessional contributions of $150,000 a year from 1 July 2007.
Other non-concessional contributions and amounts include contributions that exceed the concessional contributions cap.
Contributions totalling up to $450,000 in one year are allowed by bringing forward future entitlements to two years worth of contributions.
A transitional cap of $1 million on non-concessional contributions made between 10 May 2006 and 30 June 2007.
Individuals will be subject to tax on contributions in excess of the cap at 46.5 per cent.
Exemptions are provided for certain contributions made from amounts from the sale of qualifying small business assets and from settlements resulting from personal injuries.
No limits on undeducted contributions made in a year.

Detailed explanation of new law

Tax concessions for superannuation contributions

1.22 As part of the Government's Simplified Superannuation reforms, the provisions relating to tax concessions for contributions to superannuation entities are being rewritten and consolidated in Division 290 of the ITAA 1997.

1.23 Taxpayers can obtain a deduction or an offset for contributions to a complying superannuation fund or retirement savings account (RSA). The circumstances in which a deduction or offset is available vary depending on who is making the contribution, who the contribution is made for, and the status of the fund to which the contribution is made.

1.24 Superannuation contributions to either a complying or a non-complying superannuation fund will not be able to be deducted under provisions elsewhere in the Income Tax Assessment Act 1936 (ITAA 1936) or the ITAA 1997. However, other provisions of the income tax law may vary the deduction available (eg, subsection 73B(14) of the ITAA 1936, which applies to certain superannuation contributions paid in respect of an employee engaged in research and development activities). [ Schedule 1, item 1, section 290 - 10 ]

1.25 Certain contributions will not be eligible for a tax deduction under Division 290. These contributions include:

·
the roll-over of superannuation benefits [ Schedule 1, item 1, section 290 - 5 ];
·
a benefit transferred from an overseas superannuation fund [ Schedule 1, item 1, section 290 - 5 ]; or
·
a directed termination payment paid into a superannuation plan by an employer under transitional arrangements that apply until 30 June 2012 [ Schedule 1, item 25, section 290 - 10 of the Income Tax ( Transitional Provisions ) Act 1997 ].

Employer contributions

1.26 Employers are entitled to a full deduction for all contributions to superannuation on behalf of employees provided certain conditions are met. A deduction is allowable only for the year in which the contribution is made. [ Schedule 1, item 1, section 290 - 60 ]

1.27 The contribution must be for the purpose of providing superannuation benefits for the employee. The contribution will still be deductible, even if these benefits are payable to dependants of the employee (or their legal personal representative) after the death of the employee. However, no deduction is available under this provision for a contribution made in respect of an employee who has died, unless the conditions in new section 290-85 are satisfied (see paragraph 1.39). [ Schedule 1, item 1, section 290 - 60 ]

1.28 The personal services income rules in Part 2-42 of the ITAA 1997, which can affect the tax deductibility of superannuation contributions, will continue to apply. These rules may disallow or limit deductions on contributions made for the benefit of an associate (such as a spouse).

1.29 A contribution made under the Family Law Act 1975 to satisfy the entitlement of a former spouse (who may also be an employee) will continue not to be an allowable deduction. [ Schedule 1, item 1, subsection 290 - 60(4 )]

Who is an employee?

1.30 The existing expanded definition of 'employee' given by section 12 of the Superannuation Guarantee (Administration) Act 1992 is maintained. For example, the expanded definition ensures a person who works under a contract that is wholly or principally for their labour is an employee. [ Schedule 1, item 1, subsection 290 - 65(1 )]

1.31 A partner who makes a contribution for an employee of the partnership can deduct the contribution against their own income, even though the partner is not strictly the employer. This does not limit the ability of the partnership to claim a tax deduction when it makes a superannuation contribution on behalf of the same employee. However, a partner and the partnership cannot claim a tax deduction in respect of the same contribution. [ Schedule 1, item 1, subsection 290 - 65(2 )]

1.32 The wording in the above provisions has been amended to improve readability. This rewording does not modify the operation of the existing law.

What conditions must be met?

1.33 The conditions that must be met for employer contributions to be deductible have been simplified by removing the age-based deduction limits. In addition, employers may receive a full tax deduction for all contributions to superannuation on behalf of employees under the age of 75 (increased from the current age 70). This will allow more older employees to enter into superannuation salary sacrifice arrangements. [ Schedule 1, item 1, section 290 - 80 ]

1.34 Employers will only be able to claim a deduction for contributions to superannuation for employees aged 75 and over if those contributions are required to be made under an industrial award, determination or notional agreement preserving State awards. [ Schedule 1, item 1, section 290 - 80 ]

1.35 Conditions for the contribution to be deductible in the existing legislation that have been maintained are that:

·
the employee must be engaged in producing assessable income of the employer or an Australian resident who is engaged in the employer's business [ Schedule 1, item 1, section 290 - 70 ]; and
·
the superannuation fund is a complying superannuation fund or, if the fund is not complying, the employer reasonably believed the fund was complying or obtained a written statement from the fund stating that it was a resident regulated superannuation fund and not subject to a direction preventing it from accepting employer contributions [ Schedule 1, item 1, section 290 - 75 ].

Contributions for former employees

1.36 The general deduction rules outlined above are modified in certain circumstances for contributions made for former employees.

1.37 Superannuation contributions for former employees would ordinarily not be deductible because a condition for deductibility is that the contribution is made at a time when the individual is an employee. However, contributions for former employees that reduce an employer's SG charge percentage (ie, to meet an SG obligation) will continue to be deductible provided the other conditions for deductibility are present. [ Schedule 1, item 1, section 290 - 85 ]

1.38 This Bill also provides that a deduction is available for a superannuation contribution made on behalf of a former employee if the contribution is made in lieu of salary or wages (under a salary sacrifice arrangement) and relates to a period of service during which the person was an employee. The contribution has to be a one-off payment made following termination of employment and should reflect the employee's normal contributions to superannuation just before they ceased employment. [ Schedule 1, item 1, section 290 - 85 ]

Example 1.1 Andrew entered into a salary sacrifice arrangement during his employment under which 20 per cent of his salary was contributed to superannuation. Andrew resigns from his job on 1 December 2007 when he is age 50. His final pay period ends on 20 December 2007. The 20 per cent of Andrew's final pay that is contributed to a complying superannuation fund on 20 December is an allowable deduction to his former employer (no other contribution is made after his resignation).

1.39 Deductions will also be available for superannuation contributions made after the death of an employee in the above circumstances (ie, to satisfy an SG obligation or under a salary sacrifice arrangement).

Contributions made by persons with a controlling interest

1.40 The general deduction rules are also modified for certain circumstances where superannuation contributions are made by an entity other than an employer. For example, deductions may be available to a person with a controlling interest in the employer. This modification has been maintained from the existing legislation and, although the wording has been updated, it is not intended to modify the operation of the existing law. [ Schedule 1, item 1, section 290 - 90 ]

Contributions to offset the superannuation guarantee charge

1.41 A charge imposed under the Superannuation Guarantee Charge Act 1992 is not tax deductible. Therefore, a contribution that is offset against a SG charge liability cannot be deducted. The wording of this provision has been modified to improve readability. This rewording is not intended to modify the operation of the existing law. [ Schedule 1, item 1, section 290 - 95 ]

Returned contributions

1.42 Returned contributions, and earnings on those contributions, are assessable income to the recipient if they have previously been deductible to the employer under new Subdivision 290-B of the ITAA 1997 or section 82AAC of the ITAA 1936, unless they are received as a superannuation benefit. The wording of this provision has been modified to improve readability. This rewording is not intended to modify the operation of the existing law. Consistent with existing law, the provision does not apply to personal contributions. [ Schedule 1, item 1, section 290 - 100 ]

Personal contributions

1.43 The self-employed (and other eligible individuals) can currently deduct personal contributions if they are not entitled to receive superannuation support as an employee from another person (eg, an employer) or if that superannuation support is attributable to less than 10 per cent of their assessable income and reportable fringe benefits for the year.

1.44 From 1 July 2007, the self-employed (and other eligible individuals) will be entitled to a full deduction for superannuation contributions provided certain conditions are met. The deduction is only available in the income year in which the contribution is made. [ Schedule 1, item 1, section 290 - 150 ]

1.45 An individual's contribution must be for the purpose of providing superannuation benefits for themself. Like employer contributions, the contribution will still be deductible even if these benefits are payable to their dependants (or legal personal representative) after their death. [ Schedule 1, item 1, section 290 - 150 ]

What conditions must be met?

1.46 A person can deduct personal contributions, even if they receive some income as an employee. Currently, eligibility to deduct contributions is determined by the percentage of earnings on which superannuation support is obtained. This test will be simplified by making it consistent with the rule that currently applies for the Government co-contribution. [ Schedule 1, item 1, section 290 - 160 ]

1.47 Personal contributions will be deductible if less than 10 per cent of a person's assessable income and reportable fringe benefits are attributable to employment as an employee. The test will no longer be determined by the level of employer superannuation support a person receives or should have received. [ Schedule 1, item 1, section 290 - 160 ]

1.48 The self-employed person (or other eligible individual) must be under the age of 75 (increased from the current age 70) in order to receive a tax deduction. This will allow older individuals who meet the work test to make deductible contributions to superannuation. [ Schedule 1, item 1, subsection 290 - 165(2 )]

1.49 To be eligible for the deduction, individuals must have given a notice to the trustee or RSA provider of their intention to claim a deduction by a certain time, and received an acknowledgment from the trustee or RSA provider of receipt of the notice. [ Schedule 1, item 1, sections 290 - 170 to 290 - 175 ]

1.50 Conditions for the contribution to be deductible that have been maintained in the existing legislation are:

·
The superannuation fund must be a complying superannuation fund [ Schedule 1, item 1, section 290 - 155 ].
·
Individuals under the age of 18 must have derived income from being an employee or carrying on a business [ Schedule 1, item 1, subsection 290 - 165(1 )].

Notice requirements

1.51 An individual who wishes to claim a tax deduction for their superannuation contributions will continue to be required to notify the trustee or RSA provider in writing. The notice arrangements are being revised to ensure that the Australian Taxation Office (ATO) will have the relevant information to administer the new contribution caps (ie, the concessional contributions cap and the non-concessional contributions cap) and to determine eligibility for the co-contribution, following extension of the co-contribution to the self-employed.

1.52 This notice will now be required to be given by the earlier of the time the person lodges their income tax return or the end of the financial year following the year the contribution was made. This notice may be varied in limited circumstances (see paragraph 1.58). This will assist the Commissioner of Taxation (Commissioner) administration of the new contribution caps, and reduce the administrative burdens on superannuation funds and RSAs. [ Schedule 1, item 1, section 290 - 170 ]

1.53 A notice will not be valid in certain circumstances. These circumstances have been expanded to include when a notice is given to the trustee or RSA provider, where it either no longer holds the contribution or has begun to pay a superannuation income stream that includes the contribution. [ Schedule 1, item 1, subsection 290 - 170(2 )]

1.54 An example of when the trustee or RSA provider no longer holds a contribution is where the member has requested a partial roll-over of the superannuation benefit which includes the contribution covered in the notice.

Example 1.2 Rachel's superannuation interest is valued at $5,000 (tax free component). She makes a $10,000 personal contribution in March 2008 which would be counted against the tax free component of her superannuation interest at the time it is received. Her total superannuation account balance is $15,000.In June 2008, Rachel requests to roll-over $6,000 leaving her with a balance of $9,000. She then lodges a notice in September 2008 advising that she intends to claim a deduction on the $10,000 contribution made in the 2007-08 income year.As her account balance is only $9,000, all of the $10,000 contribution is no longer held by the trustee and therefore the notice is not valid. However, if Rachel were to lodge a notice for $9,000, this would be valid. The trustee would then convert the $9,000 from a tax free component to a taxable component and include this amount in the fund's assessable income.

1.55 If the trustee or RSA provider has merely transferred its tax liability to a life insurance company or pooled superannuation trust under new section 295-260, it will still hold the contribution.

1.56 The trustee or RSA provider will continue to be required to acknowledge the receipt of a valid notice. [ Schedule 1, item 1, subsection 290 - 170(3 )]

1.57 To ensure that other members of the superannuation fund are not disadvantaged, the superannuation provider can refuse to acknowledge a notice if the value of the person's superannuation interest is less than the tax that the fund would pay if it acknowledged the notice. [ Schedule 1, item 1, subsection 290 - 170(4 )]

Variation requirements

1.58 A notice cannot be revoked or withdrawn but may be varied to reduce the amount covered by the notice (including to nil) before the earlier of the time the person lodges their income tax return or the end of the financial year following the year the contribution was made. After this time, the notice cannot be varied unless a deduction is not allowable, as demonstrated by the following examples. [ Schedule 1, item 1, section 290 - 180 ]

Example 1.3 John lodges a valid notice to claim a tax deduction for a personal contribution of $5,000 made during the 2007-08 income year. His superannuation fund acknowledges this notice and in his 2007-08 income tax return John claims a tax deduction for $5,000. John satisfies all the conditions for claiming a deduction for his personal contribution.However, after lodging his income tax return, John requests an amendment to vary the amount claimed as a tax deduction to $3,000. As the $5,000 deduction is allowable to John, he will not be able to vary the amount to $3,000.

Example 1.4 Samantha lodges a valid notice to claim a tax deduction for a personal contribution of $8,000 made during the 2007-08 income year. Her superannuation fund acknowledges this notice in her 2007-08 income tax return and she claims a deduction for $8,000. Samantha satisfies all the conditions for claiming a tax deduction for her personal contribution.Samantha's assessable income for the year is $5,000. She has no other deductions apart from the personal superannuation contribution deduction. A deduction is not allowable for $3,000 of the contribution since this is the amount by which the contribution exceeds her assessable income. Samantha may apply to her superannuation fund to vary her notice, reducing the amount covered by the notice to $5,000.

Spouse contributions

1.59 Taxpayers will continue to be entitled to claim an 18 per cent tax offset on superannuation contributions of up to $3,000 made on behalf of their low income spouse under the current arrangements. With the receiving spouse's consent the contributing spouse may quote their tax file number. [ Schedule 1, item 1, sections 290 - 230 to 290 - 240 ]

1.60 The wording of these provisions has been modified to improve readability. This rewording does not modify the operation of the existing law.

Tax on excess contributions

Overview

1.61 Superannuation contributions will be subject to annual caps. Contributions in excess of the relevant caps will be subject to additional tax. This tax will be imposed on individuals. Where an excess contributions tax liability arises, the individual will be able to, and in some cases must , withdraw an amount equal to their tax liability from their superannuation fund.

1.62 Transitional provisions have been put in place to accommodate the commencement of the cap on non-concessional contributions from 10 May 2006. These include a cap of $1 million applying until 30 June 2007 for anyone eligible to contribute and a limited discretion being given to the Commissioner to allow the removal of excess contributions made prior to 7 December 2006 without penalty.

Concessional contributions cap

1.63 A cap of $50,000 per person per year applies to concessional contributions from 1 July 2007. This cap will be indexed. Excess concessional contributions tax is payable on any concessional contributions over the concessional contributions cap for a financial year. [ Schedule 1, item 1, sections 292 - 15 and 292 - 20 ]

What are concessional contributions?

1.64 An individual's concessional contributions in a financial year are generally contributions made by or for that individual in that year that are included in the assessable income of a superannuation provider. The contributions do not have to be included in the assessable income of the superannuation provider in the same year as the contribution is made. [ Schedule 1, item 1, section 292 - 25 ]

1.65 An individual's concessional contributions do not include:

·
roll-over superannuation benefits to the extent that they consist of an element untaxed in the fund of the taxable component in the transferring fund [ Schedule 1, item 1, subparagraph 292 - 25(2 )( c )( ii )];
·
up to $1 million of directed termination payments specified in employment contracts as at 9 May 2006, provided the payment is made prior to 1 July 2012. The $1 million is reduced by any earlier transitional termination payments that are received [ Schedule 1, item 25, section 292 - 25 ];
·
the amount of a superannuation benefit transferred from a foreign superannuation fund to which an election under subsection 307-50(2) applies. This component generally reflects investment earnings on overseas superannuation benefits while the individual was an Australian resident [ Schedule 1, item 1, subparagraph 292 - 25(2 )( c )( i )]; or
·
any contributions made to constitutionally protected superannuation funds. The taxable component of a superannuation benefit paid by a constitutionally protected superannuation fund can only consist of an element untaxed in the fund which is subject to separate taxation arrangements (see Chapter 2) [ Schedule 1, item 1, subparagraph 292 - 25(2 )( c )( iii )].

1.66 To ensure the integrity of the concessional contributions cap, regulations may contain rules specifying that additional amounts allocated to an individual by the superannuation provider can also be included. These amounts will be included in an individual's concessional contributions cap if they exceed an amount that reasonably reflects the contribution made by, or on behalf of, the individual and investment earnings in relation to the individual's superannuation interest. For example, large amounts paid into reserves and then allocated to members in an attempt to circumvent the cap will be counted in the year that they are allocated. [ Schedule 1, item 1, subsection 292 - 25(3 )]

1.67 Contributions excluded from the assessable income of superannuation providers, including the transfer of taxation liabilities and the application of pre-1 July 1988 funding credits (under Subdivision 295-D of the ITAA 1997) do not reduce the amount of assessable contributions included in a person's concessional contributions cap for the purposes of this Subdivision. [ Schedule 1, item 1, subsection 292 - 25(4 )]

1.68 Whilst payments from the Commissioner under the Superannuation Guarantee Administration Act 1992 or the Small Superannuation Accounts Act 1995 are assessable, and therefore concessional contributions if contributed after 1 July 2007, a person will be able to apply to the Commissioner to exercise discretion to disregard those amounts to the extent that they relate to employer contributions that should have been made before 1 July 2007. [ Schedule 1, item 1, sections 292 - 25 and 292 - 465 ]

Transitional arrangements for concessional contributions

1.69 A transitional concessional contributions cap of $100,000 per person per year will apply in the financial years 2007-08 to 2011-12 for individuals aged 50 or over at any time in a transitional financial year. This cap will not be indexed. [ Schedule 1, item 25, section 292 - 20 of the Income Tax ( Transitional Provisions ) Act 1997 ]

Example 1.5 Jeremy turns 50 on 5 October 2009 (in the 2009-10 financial year). At this time, he becomes entitled to the higher transitional cap of $100,000 per year. His annual concessional contributions caps for the years 2007-08 to 2011-12 are set out in the table below.

Financial year (age) 2007-08 (48) 2008-09 (49) 2009-10 (50) 2010-11 (51) 2011-12 (52)
Annual concessional contributions cap $50,000 $50,000 $100,000 $100,000 $100,000

Modifications to concessional contributions for defined benefit interests

1.70 Separate arrangements for calculating concessional contributions in relation to defined benefit superannuation interests are necessary because employer contributions made into these interests are not always attributable to individual members.

1.71 A defined benefit interest exists where all or part of the superannuation benefits payable are defined by reference to the salary or average salary of the person (or of another person), a specified amount or specified conversion factors. [ Schedule 1, item 1, subsection 292 - 175(1 )]

1.72 Some superannuation plans may pay death or disability benefits that are referenced to the member's salary. However, a superannuation interest is not a defined benefit interest if the only benefits payable in reference to a salary (or other matters outlined above) are death or disability benefits. [ Schedule 1, item 1, subsection 292 - 175(2 )]

1.73 The concessional contributions amount for a defined benefit interest will be referred to as notional taxed contributions. The method for calculating notional taxed contributions will be set out in the regulations to this legislation. The regulations may allow for different methods depending on various matters and may specify circumstances where the notional taxed contributions amount for a financial year is nil. [ Schedule 1, item 1, section 292 - 170 ]

1.74 Where only part of an interest is a defined benefit interest, the concessional contributions cap includes notional taxed contributions in respect of the defined benefit part of the interest and contributions covered under section 292-25 in respect of the rest of the interest. [ Schedule 1, item 1, section 292 - 165 ]

Grandfathering certain defined benefit interests

1.75 Given the unique nature of defined benefit interests, and the difficulty for members to reduce their contributions or notional taxed contributions, certain arrangements will be grandfathered so that these members are not unfairly taxed under the excess concessional contributions cap. [ Schedule 1, item 1, subsection 292 - 170(6 )]

1.76 Special arrangements will apply to members with a defined benefit interest on 5 September 2006 with notional taxed contributions for that interest that exceed the concessional contributions cap. In this case, the notional taxed contributions for that interest will be taken to be at the maximum level of the cap. This arrangement will cease to apply if the scheme amends their rules to increase the member's benefits. [ Schedule 1, item 1, subsection 292 - 170(6 )]

1.77 However, the regulations may allow for some changes to the rules of the superannuation fund to be permitted, even if they increase member benefits. For example, schemes may be able to amend their rules to meet requirements in other legislation without members losing access to this grandfathered arrangement. [ Schedule 1, item 1, paragraph 292 - 170(6 )( d )]

Example 1.6 Some employers are currently able to pay lower SG contributions for their employees as a result of pre-21 August 1991 earnings bases.From 1 July 2008, the use of a pre-21 August 1991 earnings base to calculate the employer's contribution for SG will no longer be allowed. From that date the employer must use ordinary times earnings to determine their SG liability. Although this will result in the employee's benefit increasing it will not result in the member losing access to the grandfathering arrangements.

1.78 In addition, the grandfathered arrangement will continue to apply if the defined benefit interest is transferred to a successor superannuation fund that retains equivalent rights for members. [ Schedule 1, item 1, subsection 292 - 170(7 )]

Non-concessional contributions cap

1.79 A cap of $150,000 per person per year on non-concessional contributions will apply from 1 July 2007. Rather than being separately indexed, this cap will remain fixed at three times the ongoing concessional contributions cap. Excess non-concessional contributions tax is payable on non-concessional contributions over the non-concessional contributions cap for a financial year. [ Schedule 1, item 1, section 292 - 80 and subsections 292 - 85(1 ) and ( 2 )]

1.80 A person who qualifies for the transitional concessional cap of $100,000 per year will not have a non-concessional cap of $300,000. [ Schedule 1, item 25, subsection 292 - 20(3 )]

What are non-concessional contributions?

1.81 An individual's non-concessional contributions in a financial year are generally contributions made by or for that individual in that year that are not included in the assessable income of a superannuation provider. [ Schedule 1, item 1, section 292 - 90 ]

1.82 Contributions made directly by an individual into their spouse's account will be counted against the receiving spouse's non-concessional contributions cap.

1.83 In addition, the following amounts are also included:

·
excess concessional contributions. This ensures that people cannot circumvent the caps by making excess concessional contributions [ Schedule 1, item 1, paragraph 292 - 90(1 )( b )]; and
·
contributions made to a constitutionally protected fund that, had the constitutionally protected fund been a taxed fund, would not have been taxed in the fund anyway [ Schedule 1, item 1, subparagraph 292 - 90(2 )( c )( iv )].

1.84 However, an individual's non-concessional contributions do not include:

·
a Government co-contribution [ Schedule 1, item 1, subparagraph 292 - 90(2 )( c )( i )];
·
certain contributions relating to personal injury payments and amounts from the disposal of certain small business assets [ Schedule 1, item 1, subparagraphs 292 - 90(2 )( c )( ii ) and ( iii )];
·
contributions that are paid out as a superannuation benefit in the same year that they are contributed as an element untaxed in the fund [ Schedule 1, item 1, subparagraph 292 - 90(2 )( c )( v )];
·
a roll-over superannuation benefit [ Schedule 1, item 1, subparagraph 292 - 90(2 )( c )( vi )]; and
·
amounts not included in a provider's assessable income because of Subdivision 295-D. These amounts are included in a person's concessional contributions cap [ Schedule 1, item 1, subsection 292 - 90(3 )].

Bring forward

1.85 As a concession, to accommodate larger contributions, people under age 65 in a financial year will be able to bring forward future entitlements to two years worth of non-concessional contributions. This means a person under age 65 will be able to contribute non-concessional contributions totalling $450,000 over three financial years without exceeding their non-concessional contributions cap. [ Schedule 1, item 1, subsections 292 - 85(3 ) and ( 4 )]

1.86 The bring forward will be triggered automatically when contributions in excess of the annual non-concessional contributions cap are made in a financial year by a person who is under age 65 at any time in the year where a bring forward has not already commenced. [ Schedule 1, item 1, subsection 292 - 85(3 )]

1.87 Where a bring forward has been triggered, the two future years' entitlements are not indexed. [ Schedule 1, item 1, subsection 292 - 85(4 )]

1.88 Table 1.1 sets out the operation of the bring forward. For simplicity, the effect of indexation (where relevant) is not reflected in the table.

Table 1.1
Year Scenario 1 Scenario 2 Scenario 3 Scenario 4
Year 1 Less than $150,000
Bring forward not triggered in this year.
Between $150,001 and $449,999
Bring forward triggered in this year.
$450,000
Entire bring forward entitlement used in this year.
More than $450,000
A tax liability for the excess in this year.
Year 2 Up to $150,000 per year or $450,000 over three years. Up to the difference between contributions in Year 1 and $450,000 over Years 2 and 3. Additional non-concessional contributions before Year 4 will exceed the cap and result in a tax liability. Additional non-concessional contributions before Year 4 will exceed the cap and result in a further tax liability.
Year 3 "
Year 4 " Up to $150,000 per year or $450,000 over three years. Up to $150,000 per year or 450,000 over three years. Up to $150,000 per year or $450,000 over three years.

1.89 To simplify the operation of the non-concessional contributions cap, people aged 63 and 64 who take advantage of the bring forward will not be required to meet the work test in either of the following two financial years.

1.90 People aged 65 to 74 will have a non-concessional contributions cap of $150,000 per year provided they satisfy the work test set out in the Superannuation Industry (Supervision) Regulations 1994 . Not allowing people over 65 to bring forward entitlements to non-concessional contributions will ensure people do not inadvertently breach the cap by failing to meet the work test in the following two financial years.

Example 1.7 Linda is 64 years old and makes contributions of $450,000 to her superannuation funds in the 2007-08 financial year. Linda does not have to satisfy the work test in either of the following two financial years in respect of the $450,000 contributions made under the bring forward arrangements.From 2008-09, being 65, Linda will have to satisfy the work test in order to make contributions. Any additional non-concessional contributions Linda makes before 1 July 2010 will be in excess of her cap and will result in a tax liability.If Linda satisfies the work test in the 2010-11 financial year she will have a non-concessional contributions cap for that year of $150,000. Contributions in excess of $150,000 will exceed her cap and will result in a tax liability. Being over 65, she will not be able to bring forward future entitlements to increase her cap (as she did in 2007-08).

Example 1.8 Glenn, aged 49, makes contributions totalling $160,000 in a year. Having not already triggered the bring forward in the previous two years, a bring forward would now be triggered.Glenn can make additional contributions of $390,000 over the following two years without having excess contributions. However, if contributions in that period exceed $390,000 Glenn will be taxed on the excess contributions at 46.5 per cent.If Glenn makes contributions of less than $390,000 in those two years he will lose the entitlement to them. That is, they can not be carried forward for use in future years.

Exemptions to the non-concessional contributions cap

1.91 In conjunction with the commencement of the non-concessional contributions cap from 10 May 2006, there are two ongoing exemptions to the cap. These relate to contributions arising from certain payments for personal injuries that result in permanent incapacity and amounts from the disposal of qualifying small business assets.

Payments for personal injury

1.92 Contributions made from certain personal injury payments are exempt from the non-concessional contributions cap when contributed to superannuation if no tax deduction is claimed. [ Schedule 1, item 1, section 292 - 95 ]

1.93 The personal injury payment must be in the form of a structured settlement, an order for a personal injury payment, or lump sum workers compensation payment. [ Schedule 1, item 1, paragraph 292 - 95(1 )( a )]

1.94 Two legally qualified medical practitioners must certify that the person is unlikely to ever be able to be gainfully employed in a capacity for which they are reasonably qualified as a result of the injury. [ Schedule 1, item 1, paragraph 292 - 95(1 )( c )]

1.95 The individual must notify the superannuation provider that the contribution is being made under this exemption before, or when, making the contribution. This will ensure that the superannuation provider is able to accept the contribution and that it is not reported against the non-concessional contributions cap. [ Schedule 1, item 1, paragraph 292 - 95(1 )( d )]

1.96 The contribution must be made to a superannuation fund within 90 days of the payment being received or the structured settlement or order coming into effect, whichever is later. [ Schedule 1, item 1, paragraph 292 - 95(1 )( b )]

1.97 The exemption from the non-concessional contributions cap only applies to the extent that the payment received relates to an amount for personal injury. [ Schedule 1, item 1, subsection 292 - 95(5 )]

Amounts from the disposal of qualifying small business assets

1.98 Contributions made from certain amounts arising from the disposal of qualifying small business assets are exempt from the non-concessional contributions cap of a person up to a lifetime limit of $1 million (indexed) where the amount is not included in the assessable income of the superannuation provider (ie, it must be a personal contribution for which no deduction is claimed). This amount is referred to as the capital gains tax (CGT) cap. [ Schedule 1, item 1, section 292 - 105 ]

1.99 Contributions allowed under the CGT cap are:

·
up to $500,000 of capital gains that are disregarded under the CGT exemption in Subdivision 152-D [ Schedule 1, item 1, subsection 292 - 100(7 )]. This supports the underlying CGT exemption which requires that capital gains which are disregarded under Subdivision 152-D be contributed to superannuation if the person is under preservation age;
·
capital proceeds from the disposal of assets that qualify for the CGT exemption in Subdivision 152-B [ Schedule 1, item 1, subsection 292 - 100(2 )]; and
·
capital proceeds from the disposal of assets that would have qualified for the CGT exemption in Subdivision 152-B but for:
·
the disposal of the asset resulting in no capital gain or a capital loss [ Schedule 1, item 1, subsection 292 - 100(2 )];
·
the asset being a pre-CGT asset [ Schedule 1, item 1, subsection 292 - 100(5 )]; or
·
the asset being disposed of before the required 15-year holding period had elapsed because of the permanent incapacity of the person (which occurred after the asset was purchased) [ Schedule 1, item 1, subsections 292 - 100(3 ) and  ( 6 )].

1.100 This exemption recognises that many small business people invest in their business rather than make regular contributions into superannuation and later use the equity in their business to fund their retirement.

1.101 A person's CGT cap is reduced by the amount of each contribution they elect to be covered by the exemption from the non-concessional contributions cap. This includes elections made for contributions made between 10 May 2006 and 30 June 2007 (the deemed 2006-07 year). [ Schedule 1, item 1, subsection 292 - 105(2 ) and Schedule 1, item 25, paragraph 292 - 80(3 )( h ) of the Income Tax ( Transitional Provisions ) Act 1997 ]

1.102 A contribution will only count towards the CGT cap if the person notifies their superannuation provider before, or when, the contribution is made. This will ensure that the superannuation provider is able to accept the contribution and that it is not reported against the non-concessional contributions cap but is instead reported correctly against the CGT cap. It also provides the person with the choice as to whether all or part of a contribution uses their non-concessional contributions cap or their CGT cap. [ Schedule 1, item 1, subsection 292 - 100(9 )]

1.103 Where the person has the CGT event, the contribution must be made no later than the day the person is required to lodge their tax return for the financial year in which the CGT event occurred or 30 days after the day the person received the capital proceeds, whichever is later. Where the capital proceeds are received and contributed in instalments, each instalment is a separate contribution which must be made within the above timeframes. [ Schedule 1, item 1, paragraphs 292 - 100(2 )( b ) and ( 7 )( b )]

1.104 A CGT concession stakeholder of an entity that had a capital gain disregarded under Subdivision 152-B (or would have if certain conditions were met) is also entitled to use the CGT cap in the above circumstances. However, the entity must make a payment to that person within two years of the CGT event and that person must make a contribution within 30 days of that payment for the contribution to qualify for the CGT cap. The amount of the contribution is limited to the person's stakeholder's control percentage of the capital proceeds up to the CGT cap amount. [ Schedule 1, item 1, subsection 292 - 100(4 )]

1.105 A CGT concession stakeholder of an entity that had a capital gain disregarded under Subdivision 152-D is also entitled to use the CGT cap in the above circumstances. However, the entity must make a payment to that person that satisfies the conditions in section 152-325. Subject to meeting those conditions, the contribution must be made within 30 days of that payment for the contribution to qualify for the CGT cap. The amount of the contribution can be no more than the capital gain and can not exceed the amount of this payment from the entity. [ Schedule 1, item 1, subsection 292 - 100(8 )]

Example 1.9 Ruth, aged 59, sells an active asset used in her small business which she has owned continuously for over 15 years. The proceeds from the sale are $1.1 million. She qualifies for the CGT exemption in Subdivision 152-B and disregards the capital gain of $390,000 on this basis. Ruth would like to contribute the entire proceeds to her superannuation fund.Assuming Ruth has not previously made any contributions or used her CGT cap, she may elect to contribute $1 million under the cap exemption and have the remaining $100,000 count towards her non-concessional contributions cap. This would allow her to make an additional $50,000 worth of non-concessional contributions in the year without exceeding her annual cap.Alternatively, as she is under 65, she may use the bring forward to contribute $450,000 and only use her CGT cap for the remaining $650,000. This will leave Ruth with a CGT cap of $350,000 for use in the future. However, any further non-concessional contributions made in that year, and the following two years, will exceed her non-concessional contributions cap and result in an excess contributions tax liability.Note that if Ruth had her capital gain disregarded under the Subdivision 152-D exemption instead she would have only been able to contribute the capital gain (ie, up to $390,000) and not the capital proceeds under the cap exemption.

Transitional arrangements for the non-concessional contributions cap

Application of the non-concessional contributions cap between 10 May 2006 and 30 June 2007 - the deemed 2006-07 financial year

1.106 All individuals who are eligible to contribute (eg, those aged 65 to 74 must satisfy the work test set out in the Superannuation Industry (Supervision) Regulations 1994 ) will have a cap of $1 million for non-concessional contributions between 10 May 2006 and 30 June 2007. This period will be treated as the 2006-07 financial year for the purposes of the cap. [ Schedule 1, item 25, subsection 292 - 80(1 ) and paragraph 292 - 80(3 )( c ) of the Income Tax ( Transitional Provisions ) Act 1997 ]

1.107 Excess non-concessional contributions tax and the associated administration arrangements will apply with the following modifications:

·
the bring forward arrangements will not apply until 1 July 2007 [ Schedule 1, item 25, paragraph 292 - 80(3 )( d ) of the Income Tax ( Transitional Provisions ) Act 1997 ];
·
contributions in excess of a person's age-based deduction limit will be counted as a non-concessional contribution (as these contributions are undeducted employer contributions) [ Schedule 1, item 25, subsections 292 - 80(5 ) and ( 6 ) of the Income Tax ( Transitional Provisions ) Act 1997 )];
·
the person's CGT cap amount will be $1 million at 10 May 2006 and any contributions made during this period will reduce their CGT cap from 1 July 2007 [ Schedule 1, item 25, paragraphs 292 - 80(3 )( e ) and ( 3 )( h ) of the Income Tax ( Transitional Provisions ) Act 1997 ]; and
·
the choice to use the personal injury or CGT cap exemption from the non-concessional contributions cap must be given to the superannuation provider by 31 July 2007 [ Schedule 1, item 25, paragraphs 292 - 80(3 )( f ) and ( g ) of the Income Tax ( Transitional Provisions ) Act 1997 ].

Transitional release authorities

1.108 A person who has non-concessional contributions in excess of $1 million for the period 10 May 2006 to 6 December 2006 can apply to the Commissioner for a transitional release authority. This application must be made before 1 July 2007. [ Schedule 1, item 25, section 292 - 80A of the Income Tax ( Transitional Provisions ) Act 1997 ]

1.109 The transitional release authority may be given to a superannuation provider within 21 days of receipt and authorises the person's superannuation provider to release the amount of the excess non-concessional contributions. [ Schedule 1, item 25, section 292 - 80B of the Income Tax ( Transitional Provisions ) Act 1997 ]

1.110 The superannuation provider must pay the amount to the person within 30 days of receipt. A superannuation provider will be required to give to the Commissioner a statement under section 390-65 of the Taxation Administration Act 1953 (TAA 1953) in relation to this payment. [ Schedule 1, item 25, paragraph 292 - 80(2 )( c ) of the Income Tax ( Transitional Provisions ) Act 1997 ]

1.111 If a transitional release authority is given to a superannuation provider, and an amount is released, the person's non-concessional contributions for the year will be reduced by any amounts returned to them. These amounts are non-assessable, non-exempt income to the extent they do not exceed the total amount that is authorised for release. [ Schedule 1, item 25, paragraph 292 - 80(3 )( i ) of the Income Tax ( Transitional Provisions ) Act 1997 and item 1, subsections 304 - 15(2 ) and ( 3 )]

1.112 Where a person accesses more than the amount authorised for release, that amount will be included in their assessable income and subject to income tax at marginal rates. In addition, they will be liable for an administrative penalty. [ Schedule 1, item 1, subsection 304 - 15(4 ) and item 23, section 288 - 100 of the TAA 1953 ]

1.113 If a transitional release authority is not actioned, and the excess contributions are not removed from the superannuation system, those contributions will continue to be included in the calculation of a person's excess non-concessional contributions tax liability for the year. [ Schedule 1, item 25, paragraph 292 - 80(3 )( i ) of the Income Tax ( Transitional Provisions ) Act 1997 ]

Example 1.10 Pat makes a contribution of $1.3 million on 11 May 2006. Not wanting to breach the cap on non-concessional contributions he applies to the Commissioner for a transitional release authority on 3 May 2007. The Commissioner issues the transitional release authority for $300,000 on 2 June 2007.Pat gives the transitional release authority to his superannuation provider within 21 days. His fund is obligated to return the excess to him within 30 days. Pat's non-concessional contributions for the year will be reduced by the amounts returned to him by his fund under the transitional release authority.

Commissioner's discretion to disregard or reallocate contributions

1.114 A person can apply to the Commissioner for a written determination that, for the purposes of working out their excess contributions for a financial year, all or part of the contributions should be either disregarded or allocated to another financial year. [ Schedule 1, item 1, subsection 292 - 465(1 )]

1.115 A person must request the exercise of the discretion within 60 days of receiving an excess contributions tax assessment, although a longer period may be allowed by the Commissioner. [ Schedule 1, item 1, subsection 292 - 465(2 )]

1.116 The Commissioner may make the determination only if he or she considers that there are special circumstances and making the determination is consistent with the object of Division 292. [ Schedule 1, item 1, subsection 292 - 465(3 )]

1.117 The courts have considered what 'special circumstances' means in many different contexts. It is clear from the case law that special circumstances are unusual circumstances, or circumstances out of the ordinary. Whether circumstances are special will vary from case-to-case as the context requires, but in this context they must make it unjust, unreasonable or inappropriate to impose the liability for excess contributions tax.

1.118 However, in making the determination, the Commissioner may have regard to certain matters specified in the law. These are whether:

·
the contributions made in a particular financial year would be allocated more appropriately to another year; and
·
it was reasonably foreseeable a particular contribution would result in a person having an excess contribution when the contribution was made.

[ Schedule 1, item 1, subsections 292 - 465(5 ) and ( 6 )]

1.119 When considering whether an excess is reasonably foreseeable, the Commissioner may consider the terms of any agreement or arrangement between the individual and another person where those terms affect the amount or timing of the contribution. For example, where contributions are made by an employer under a workplace agreement, industrial award or an effective salary sacrifice agreement the Commissioner will need to consider the terms of those agreements. The Commissioner may also consider the extent to which the individual has control over the making of the contribution. For example, a person who is making a contribution towards the end of a financial year should ensure that the fund receives the contribution before the end of the financial year to ensure it is taken into account in that year and not the subsequent one. [ Schedule 1, item 1, subsection 292 - 465(4 )]

1.120 If the Commissioner determines that contributions can be disregarded or reallocated, for the purposes of working out a person's excess contributions for a financial year, the Commissioner must give the person a copy of the determination. [ Schedule 1, item 1, subsection 292 - 465(7 )]

1.121 The Commissioner may exercise the discretion in relation to any assessment made for a financial year commencing after 30 June 2007. He or she may also exercise the discretion in relation to an assessment made under the special transitional rules that apply to the period from 10 May 2006 to 30 June 2007. [ Schedule 1, item 25, subsection 292 - 80(2 ) of the Income Tax ( Transitional Provisions ) Act 1997 )]

Example 1.11 Barbara has entered into an effective salary sacrifice arrangement with her employer to sacrifice 20 per cent of her salary into superannuation. This results in a contribution of $45,000 for the year. However, during the same year, the ATO collects an SG charge from Barbara's previous employer for quarters in an earlier financial year and pays $20,000 to her superannuation fund. As a result, Barbara's fund reports to the ATO $65,000 in concessional contributions for the financial year.Barbara is issued a concessional contributions tax assessment for an excess of $15,000. Barbara applies to the Commissioner to use his discretion. The Commissioner may exercise his discretion as $20,000 of her concessional contributions are properly referrable to a previous financial year. It may be unreasonable to assess Barbara to the excess contributions tax where it is clear that but for her previous employer's failure to provide superannuation support to Barbara in a timely way, Barbara would not have had excess concessional contributions for the year. If the discretion is exercised, Barbara's concessional contributions for the year would be reduced to $45,000. The Commissioner may also reallocate the $20,000 concessional contributions to Barbara's concessional contributions for the previous year.

Example 1.12 Jaylee is 63 and makes a $750,000 contribution to superannuation in the 2009-10 financial year, for which she cannot claim a deduction. After receiving an excess non-concessional contributions tax assessment, Jaylee applies for the Commissioner to exercise his discretion to re-allocate $300,000 of the contributions to earlier financial years in which she did not make contributions, arguing that they should be counted under the bring forward provisions.The Commissioner will not exercise the discretion in this case as Jaylee's circumstances are not exceptional and the outcome would not be consistent with the object of the Division. The contributions caps operate on a 'use it or lose it' basis. That is, non-concessional contributions are subject to annual limits with the ability for those under age 65 to bring forward future entitlements to two years worth of non-concessional contributions. Past years' entitlements can not be carried forward in this manner.

Example 1.13 George's employer contributes $50,000 each year to his superannuation plan under the terms of an effective salary sacrifice agreement. However, his employer's contribution for Year 1 was made on 3 July of Year 2. The employer's contribution for Year 2 was then made on 29 June of that same year (again during Year 2). This resulted in George having no concessional contributions in Year 1 but concessional contributions of $100,000 in Year 2.The Commissioner may exercise his discretion in this case, to allocate $50,000 to Year 1 as the first contribution is more appropriately allocated to Year 1. Reallocating the amount to Year 1 would be consistent with the object of the excess contributions taxes and fairly matches the employer's contributions to the financial year in which they should have been made to George's fund.

Example 1.14 Antoni is a member of an employer sponsored superannuation plan. Under the terms of the plan Antoni is required to contribute 5 per cent of his salary ($5,000) to the fund each year. Each of his contributions will be a non-concessional contribution. However, in one particular year, Antoni also contributes $450,000 from an inheritance. Antoni is subsequently issued a tax assessment for his excess non-concessional contributions of $5,000. Antoni applies to the Commissioner for an exercise of the discretion.The Commissioner may decide not to exercise his discretion in this case, as it was reasonably foreseeable that Antoni would exceed his non-concessional contribution cap in that year as a result of making a contribution of $450,000.

Example 1.15 Helen instructs her overseas superannuation provider to pay an amount to her Australian superannuation provider on 15 August 2007. At the time of giving her instructions Helen tried to specify an amount in the foreign currency that would not exceed $450,000, taking into account the prevailing exchange rate. However, the amount actually paid on 19 August 2007 was $454,500, the exchange rate having changed more than she expected.The Commissioner may exercise his discretion and disregard the amount of $4,500. It was not reasonably foreseeable that Helen would exceed her non-concessional contribution cap for that year and it may be unjust to impose the tax in circumstances in which Helen attempted to contribute an amount less than the non-concessional contributions cap.

Release authorities

1.122 Generally, the superannuation preservation rules restrict the ability of individuals to withdraw money from superannuation until after they have attained preservation age, and retired.

1.123 However, from 1 July 2007, where an excess contributions tax liability arises, the individual will be able to, and in some cases must , withdraw an amount equal to their tax liability from their superannuation provider.

1.124 The Commissioner will provide individuals liable for excess contributions tax with a release authority, that is, a written notice authorising an individual to withdraw money from a superannuation fund provider. Separate release authorities will be issued for each of the taxes (where applicable) as different arrangements apply. [ Schedule 1, item 1, section 292 - 405 ]

1.125 Release authorities can be presented to any of a person's superannuation providers, other than those that only hold a defined benefit interest for the individual. [ Schedule 1, item 1, subsection 292 - 410(1 )]

1.126 The amount a superannuation provider is required to release is the lesser of:

·
the amount specified by the person;
·
the amount of excess contributions tax stated on the release authority; or
·
the sum of the values of every superannuation interest (other than a defined benefit interest) held for the person.

[ Schedule 1, item 1, subsections 292 - 415(1 ) and ( 2 )]

1.127 Superannuation providers will be required to pay the amount within 30 days. These amounts are non-assessable, non-exempt income to the extent they do not exceed the total amount that is authorised for release. [ Schedule 1, item 1, subsections 292 - 415(1 ), 304 - 15(2 ) and ( 3 )]

1.128 A person can direct their superannuation provider to release money either to themselves or directly to the ATO. Payments made directly to the ATO by a superannuation provider are taken to be made in satisfaction of the person's excess contributions tax liability. [ Schedule 1, item 1, subsection 292 - 415(3 )]

1.129 The proportioning rule does not apply to amounts paid under a release authority. [ Schedule 1, item 1, subsection 292 - 415(5 )]

1.130 Where a person accesses more than the amount authorised for release, that amount will be included in their assessable income and subject to income tax at marginal rates. In addition, they will be liable for an administrative penalty. [ Schedule 1, item 1, subsection 304 - 15(4 )]

Excess concessional contributions

1.131 Individuals will have a choice as to whether or not to withdraw the amount equal to all, or part, of their excess concessional contributions tax liability from superannuation. [ Schedule 1, item 1, subsection 292 - 410(1 )]

1.132 A release authority for excess concessional contributions will expire after 90 days. The time limit on providing release authorities for excess concessional contributions tax is necessary to maintain the integrity of the superannuation preservation rules. [ Schedule 1, item 1, subsection 292 - 410(1 )]

Excess non-concessional contributions

1.133 Individuals must withdraw the amount equal to their excess non-concessional contributions tax liability from superannuation by providing the release authority to their superannuation provider/s within 21 days. Individuals who fail to comply with this requirement will be liable for an administrative penalty. [ Schedule 1, item 1, subsection 292 - 410(2 ) and item 23, section 288 - 90 of the TAA 1953 ]

1.134 Where a person fails to withdraw the required amount, the Commissioner is able to present release authorities directly to superannuation providers on behalf of that person. [ Schedule 1, item 1, subsections 292 - 410(3 ) and ( 4 )]

1.135 Excess contributions tax may be offset or added to other income tax debits or credits of the individual. However, a person will still be required to withdraw the amount equal to their excess non-concessional contributions tax liability from superannuation. That is, they can not withdraw the net tax liability owing where this differs from their excess non-concessional contributions tax liability.

Penalties

On the individual

1.136 An individual will be liable for an administrative penalty of 20 penalty units where:

·
they fail to give a release authority for non-concessional contributions tax to a superannuation provider within 21 days after the date of the release authority [ Schedule 1, item 23, section 288 - 90 of the TAA 1953 ]; or
·
the total amount paid by their superannuation providers exceeds the amount authorised to be released [ Schedule 1, item 23, section 288 - 100 of the TAA 1953 ].

Example 1.16 Shaz receives a compulsory release authority in relation to her excess non-concessional contributions tax. She presents her compulsory release authority to multiple funds and, in doing so, accesses more than the total authorised for release. Shaz will be liable for an administrative penalty.In addition, the amount over what should have been released will be included in her assessable income in the year it was released and subject to income tax at marginal rates.

On the superannuation provider

1.137 A superannuation provider will be liable for an administrative penalty of 20 penalty units where they fail to comply with a release authority within 30 days. [ Schedule 1, item 23, section 288 - 95 of the TAA 1953 ]

Excess contributions tax liabilities

Assessments

1.138 The Commissioner must make an assessment of excess contributions tax if a person has excess concessional contributions or excess non-concessional contributions for a financial year. The Commissioner will not make an assessment if a person does not have excess concessional contributions or excess non-concessional contributions for a financial year. [ Schedule 1, item 1, subsections 292 - 230(1 ) and ( 2 )]

1.139 The Commissioner must give the person a notice of the excess contributions tax assessment (or amended assessment) as soon as practicable. [ Schedule 1, item 1, subsections 292 - 230(3 ) and 310(2 )]

1.140 Excess contributions tax assessments may be issued by the Commissioner as part of an individual's income tax assessment notice, or any other assessment notice. [ Schedule 1, item 1, subsections 292 - 230(4 ) and 310(3 )]

1.141 Consistent with the arrangements applying to an individual's other income tax liabilities, excess contributions tax will be payable 21 days after the Commissioner has given the person the notice of assessment. Amounts that remain unpaid after that period will attract the general interest charge (GIC). The Commissioner may remit the GIC under existing remission guidelines. [ Schedule 1, item 1, sections 292 - 385 and 292 - 390 ]

1.142 The Commissioner may issue a part-year assessment and treat the period as if it is a financial year. This would occur in circumstances where the Commissioner is of the opinion a part-year assessment is justified. In these cases the Commissioner will also be required to make an assessment in relation to the actual financial year as soon as possible after the end of that year unless the assessment would not differ in a material way from the part-year assessment. A part-year assessment does not provide more than one cap for either the excess concessional contributions cap or the excess non-concessional contributions cap. [ Schedule 1, item 1, section 292 - 235 ]

1.143 The validity of assessments will not be affected through non-compliance with provisions in the ITAA 1936 and the ITAA 1997. [ Schedule 1, item 1, section 292 - 240 ]

1.144 Objections to assessments can be made under Part IVC of the TAA 1953. [ Schedule 1, item 1, section 292 - 245 ]

1.145 Evidence requirements in section 177 of the ITAA 1936 will apply to these assessments. [ Schedule 1, item 1, section 292 - 250 ]

1.146 The Commissioner has the same powers to obtain information as provided by section 264 of the ITAA 1936. [ Schedule 1, item 1, section 292 - 470 ]

1.147 The reporting obligations on superannuation providers to enable the Commissioner to make excess contributions tax assessments are contained in Division 390 in Schedule 1 to the TAA 1953.

Amended assessments

1.148 At any time up to four years after an original excess contribution tax assessment has been given to a person for a financial year the Commissioner can issue an amended excess contribution tax assessment that either increases or decreases the excess contribution tax liability. An amended assessment can be issued by the Commissioner to the person in a similar way as the original assessment. [ Schedule 1, item 1, sections 292 - 305 and 292 - 310 ]

1.149 The day on which the Commissioner first gives a notice of assessment to the person for a financial year is the original excess contribution assessment day. [ Schedule 1, item 1, subsection 292 - 305(2 )]

1.150 Assessments can be amended by the Commissioner after the end of the four years of being made if an individual has requested an amendment and provided any necessary information within the four year amendment period. [ Schedule 1, item 1, section 292 - 315 ]

1.151 Amended assessments can only be further amended within four years of the particular amended assessment. [ Schedule 1, item 1, section 292 - 325 ]

1.152 The assessment can be amended at any time if the Commissioner is of the opinion that a person or provider has not given a full and true disclosure, or an under-assessment has been made and the under-assessment has been as a result of fraud or evasion. [ Schedule 1, item 1, section 292 - 320 ]

1.153 An assessment (or amended assessment) can be amended at any time to give effect to a review or appeal decision or to be reduced pending such a decision, or as a result of an objection if the Commissioner considers it just to do so. [ Schedule 1, item 1, section 292 - 330 ]

1.154 Where an amended assessment results in a refund it will be paid in accordance with the existing guidelines. [ Schedule 1, item 1, section 292 - 395 ]


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