From 1 July 2011, individuals who breach the concessional contributions cap by up to $10,000 can request that these excess contributions be refunded to them. This new refund option will only apply for first time breaches of the concessional caps.
These changes will make the superannuation system fairer by giving individuals the option to take excess concessional contributions out of their superannuation fund and have it assessed at their marginal rate of tax, rather than incurring a potentially higher rate of excess contributions tax.
The excess contributions tax is designed to ensure that individuals adhere to the superannuation contributions caps, and is part of ensuring that the substantial tax concessions for superannuation are sustainable and fair.
The Government understands that individuals make mistakes and should not be penalised the first time they exceed the concessional cap for less significant and inadvertent breaches.
This reform is expected to reduce the number of occasions where the concessional contribution caps are exceeded resulting in a tax assessment. This complements the Government's other reforms to make the super system fairer, including the increase in the concessional caps for the over 50s (with balances under $500,000) from 1 July 2012, the gradual increase in the SG rate to 12 per cent, and the new super contribution of up to $500 for low income earners.
Excess contributions tax is incurred where an individual exceeds their concessional contributions cap. Concessional contributions include compulsory superannuation guarantee payments, salary sacrifice contributions, and other deductible contributions. Excess concessional contributions are taxed at 31.5 per cent, in addition to 15 per cent tax when contributions are made to the fund.
The Government will consult with the superannuation industry on the implementation of this measure.