It seems like a great idea to stash more cash in your Superannuation account so you have a larger nest egg to retire on, right? 🙄
But, if you’re like most people you might not know that you could be hit by an extra tax on those contributions, if you exceed a certain limit. It might sound a tad unfair to many of you.
However, negotiating tax requirements often seems like a minefield, and this area is no exception. So, here’s what you need to know about topping up your Super.
Excess Concessional Contributions (ECC) Charge
If your 2015 excess employer contributions exceed $30,000:
* You’re subject to an excess contributions charge;
* The charge is imposed on the individual rather than the super fund;
* It can be deducted from your super account.
How much is the charge?
Before the 2013-14 financial year the excess concessional contributions were taxed at 31.5%. That’s now changed.
Beyond the 2013-14 financial year;
1. The excess contribution amount is added to your assessable income and taxed at your marginal tax rate,
2. You’ll also have to pay the excess concessional contributions (ECC) charge on the increase in your tax liability. This charge is simply because the ECC tax is collected later than normal income tax.
How Do You Pay the Additional Tax and ECC?
You can do one of two things:
1. Pay the additional tax and ECC from personal funds; OR
2. Elect to have your superfund pay the charge instead. There is a limit though. It’s 85% of the excess contributions. If you elect an amount which is more than the tax and ECC charge it will be refunded to you. The elected amount is required to be sent to the ATO – not the superfund. If you have a tax agent you can give them the authority to lodge the election electronically on your behalf.
Taxable income exceeding $300,000
If your taxable income is more than $300,000 you’ll pay 30% tax on your employer super contributions. This is a doubling of the tax ……. income earners in lower tax brackets pay 15% on their employer contributions and is known as the ‘Division 293 tax’. The additional 15% is initially levied against you and not the Superfund, effectively making it a personal tax to cover.
How Do You Pay this Additional Tax?
You can choose to pay this tax directly from your own private savings, or arrange for your Superfund to pay the extra tax from your Super account.
A release authority form will be sent to you from the ATO once the return has been processed. The release authority needs to be sent to the Superfund and NOT the ATO.
This is different to the ECC Charge and taxpayers may be subject to BOTH these taxes. Particularly those with a taxable income in excess of $300,000.
Why So Many Variances In These Taxes?
The simple answer is that it’s the law. There’s no use grumbling about and there’s no point ignoring it.
If you need any help with this topic don’t hesitate to book a time to see me. Ignorance doesn’t hold up in court.Back to all blogs