According to the Australian Taxation Office (ATO), excess super contributions tax is due on superannuation contributions that go over the concessional (before tax) or non-concessional (after tax) cap amount. While saving is a great way to plan for a comfortable retirement, adding too much into your retirement savings can mean additional taxes.
The annual contribution caps
Concessional contributions are contributions made into your self managed super fund (SMSF) before your income tax is taken out. They are currently taxed in your SMSF at 15%.
The most common concessional contribution types are employer contributions such as super guarantee, your salary sacrificed contributions and any other contributions where you have claimed an income tax deduction.
As of 1 July 2017, the general concessional contributions cap is at $25,000 annually for all individuals regardless of age.
Non-concessional contributions, on the other hand, are generally after-tax contributions made into your SMSF. The most common non-concessional contributions are personal contributions where no income tax deduction is claimed.
As of 1 July 2017, the annual non-concessional contributions cap is at $100,000 for individuals who are 65 years old or over but under 75. Contributions over the cap will be taxed at 47%.
Exceeding the annual contribution caps
Should you exceed the concessional contributions cap, the ATO will issue you with an excess concessional contributions determination. In the determination, you will see your excess contribution amount as well as the amount of the excess concessional contributions charge. It will also advise you of what actions you’ll need to take accordingly.
If you exceed the non-concessional contributions cap, you will also receive a determination from the ATO explaining your options. One option is to withdraw the excess non-concessional contributions and any earnings which would then be included in your income tax assessment. Should you choose not to withdraw your excess contributions, they will be taxed at your top marginal tax rate.
What to do
According to the ATO, if you go over the non-concessional contributions cap, the easiest thing to do is nothing. In this situation, they will request a release of the amounts to be paid straight to the ATO. They will also revise your income tax assessment to include the associated earnings as part of your taxable income, with any tax taken out of the balance and the rest refunded to you.
Another option is to release all your excess non-concessional contributions and 85% of your associated earnings from your super funds. The ATO will then issue a release authority to your nominated super fund(s), and they will pay this amount to you.
Rectifying excess contributions to super by can be challenging as choosing the best option will depend on your specific situation. If you’re unsure of what to do or just want to know if you have excess contributions, talk to a Chan & Naylor accountant to get reliable advice for your situation.
Aside from saving you tax on your super contributions, have a look at our other accounting and advisory services that we do to help you achieve greater success.
Chan & Naylor Group has nationwide offices in North Sydney, South West Sydney, Sydney, Pymble and Parramatta in New South Wales, Melbourne, Moonee Ponds and Hawthorn in Victoria, Brisbane and Capalaba in Queensland, and East Perth in Western Australia that can assist you with excess super contributions as well as any other business or personal tax enquiry that you may have. Contact us today.