The excess Concessional Contribution Charge (ECCC) is an additional tax payable by an individual resulting from the fact that they will be paying income tax later than when it would have been ordinarily due.
When a person earns income, they are required to pay income tax on those earnings. However, in order to reduce their personal income tax liability, they may decide to make a Concessional Contribution, maybe in the form of a salary sacrifice contribution or personal deductible contribution.
The level of Concessional Contributions that a person can make each financial year is limited by a cap – the Concessional Contribution Cap. If this cap is exceeded, the excess contributions are taxed at the individual’s marginal tax rate and also gives rise to the Excess Concessional Contribution Charge rate.
What are the Excess Concessional Contribution Charge Rules?
Had the excess Concessional Contributions not been made, the Australian Tax Office (ATO) would have collected more tax from the individual sooner, because a tax deduction would not have been claimed for the excess Concessional Contributions.
To compensate for the ‘late’ income tax payable, an Excess Concessional Contribution Charge is payable.
The Excess Concessional Contribution Charge is applied from the beginning of the fiscal year that the excess contribution was made and ends the day before the day that tax is due to be paid under the individual’s first income tax assessment for that same year.
What is the Excess Concessional Contribution Charge Rate?
The rate charged for Excess Concessional Contribution purposes is updated quarterly. The formula to arrive at the Excess Concessional Contribution Charge rate is a base interest rate, plus an uplift factor of 3%. The base rate is determined by the 90-day Bank Accepted Bills, published by the Reserve Bank of Australia.
Follow this link for the latest quarterly and daily Excess Concessional Charge rates.
Are All Contributions Above the General Cap Excess Contributions?
Currently, yes. But from 1 July 2019, a person may begin utilising unused Concessional Contribution cap if their superannuation balance is below $500,000, without exceeding the Concessional Contribution cap. Click here to read more.