The Abbott Government today has made the taxation of excess superannuation contributions fairer.
Currently, superannuation contributions that exceed the non‑concessional contributions cap are taxed punitively at the top marginal tax rate.
Given non-concessional superannuation contributions come from income that had already previously been taxed, this can take the overall tax rate up to a staggering 93 percent.
Invariably these breaches of the non-concessional caps are inadvertent and can even be outside the direct control of the contributor.
This punitive tax penalty is targeting people doing the right thing by saving more so they can look after their own needs in retirement reducing their reliance on the age pension.
In Opposition we called on the previous government to fix this and promised that we would if they didn't.
Today, the Abbott Government is honouring that election commitment by making sure inadvertent breaches of the non-concessional contributions cap do not incur a disproportionate penalty.
This will ensure the treatment of excess concessional and non‑concessional contributions is broadly consistent.
For any excess contributions made after 1 July 2013, breaching the non-concessional cap, the Government will allow individuals to withdraw those excess contributions and associated earnings.
If an individual chooses this option, no excess contributions tax will be payable and any related earnings will be taxed at the individual's marginal tax rate.
Individuals who leave their excess contributions in the fund will continue to be taxed on these contributions at the top marginal rate.
This measure also deals with both policy recommendations made in the Inspector General of Taxation's report on the Australian Taxation Office's approach to superannuation excess contributions tax.
In his excess contributions tax report, the Inspector-General made nine other recommendations, which seek to improve the administration of the excess contributions tax, including through further Australian Taxation Office assistance being provided to taxpayers in monitoring their contribution levels.
The Inspector-General's report, including the Australian Taxation Office's response, is available at www.igt.gov.au.