Excess non-concessional contributions tax is payable when a superannuation member exceeds the non-concessional cap.
Non-concessional contributions are generally made from personal bank account savings.
There are non-concessional contribution caps, age limits and potential excess non-concessional contributions tax.
All of which is discussed below.
Excess Non-Concessional Contributions Tax
Excess non-concessional contributions tax may be payable on contributions that exceed the cap.
The non-concessional contribution cap is currently $100,000 per person, per financial year.
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The non-concessional contribution cap is also affected by the Transfer Balance Cap amount.
Non-concessional contributions also cannot be made if the contribution will cause the Transfer Balance Cap to be exceeded.
The current Transfer Balance Cap amount is $1.6 million.
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Excess Non-Concessional Contributions Tax Rate
The excess non-concessional contribution tax rate depends on whether you opt to release your excess non-concessional contributions or not.
You can nominate your preferred option on the determination form issued to you by the Australian Tax Office (ATO).
When you exceed the non-concessional contribution cap, you can opt to release the excess from your super fund, or leave the excess in there.
When you opt to release and withdraw the excess contributions, you will also receive 85% of the earnings derived from the excess while it was in super.
The reason 85% of the associated earnings are also released is because tax on earnings within super is 15%.
Therefore, the 85% represents the associated earnings after superannuation earnings tax in accumulation phase.
If you withdraw the excess non-concessional contributions and earnings, the ATO will add to your personal income tax assessment the earnings derived from the excess amount while it was in super.
The earnings will be taxed at your marginal tax rate.
You will receive a non-refundable tax-offset equal to 15% on these earnings to account for the level of tax already paid on these earnings.
The second option is to not release your excess contributions and associated earnings from super.
If you choose this option, the excess non-concessional contribution amount is taxed at the highest marginal tax rate, which is currently 45%.
If you don’t nominate either option, the ATO will request your super fund releases the excess contributions to them, as well as associated earnings.
They will use this amount to recalculate your personal income tax assessment and refund to you any amounts not used to pay outstanding taxes or government debts.
Excess Non-Concessional Contribution Associated Earnings
The excess non-concessional contribution associated earnings is calculated by applying the general interest charge rate.
The general interest rate is a standardised rate for each quarter.
The general interest rate is applied to the excess contributions for the relevant period of the excess contributions.
The relevant period of the excess contributions begins from the date the excess contributions were made until the date of the original excess non-contributions determination letter was issued by the ATO.
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Application of Excess Non-Concessional Contributions Tax
Once the ATO determines that you have exceeded the non-concessional contributions cap, they will issue you with a determination.
This determination explains your options.
You must complete an income tax return in the financial year that you exceed the non-concessional contribution cap.
By doing nothing, the ATO will request your super fund to release the excess contributions and associated earnings.
The excess contributions will be used by the ATO to pay any outstanding amounts, such as taxes and government debts, and send the remaining balance to you.
The ATO will also amend your income tax assessment to include associated earnings and deduct any resulting additional taxes from the amount released from super.
Alternatively, you can choose one of two options stated on the ATO determination, within 60 days from the date of your determination.
If you choose this option, you will need to complete a non-concessional contributions election form.
This allows you to nominate which super fund the amount is released from.
If you choose not to release and withdraw your excess non-concessional contributions, the ATO will calculate tax at the highest marginal tax rate on the excess and the ATO will ask your super fund to send the applicable tax to them.
Option 2 must be selected if your only super fund is a defined benefit fund.