INFOGRAPHIC: Latest ATO Excess Contributions Tax statistics

The ATO has recently updated its website with the latest statistics regarding excess contributions tax (ECT), which continues to show individuals predominantly getting caught with their concessional contribution (i.e. salary sacrifice arrangements).  After a 314% increase in ECT notices in 2009-10, there has been a reduction again in 2010-11 to date, however it is significantly higher against historical statistics.   After collecting a whopping $176.6 million in ECT revenue in 2009-10, statistics for 2010-11 already show a further $100 million of revenue collected so far.

The newly introduced “one-off” refund of concessional contributions will appear to get a heavy workout in its first year of operation (2011-12) based on current statistics!

I have created an interactive infographic that details that latest ECT statistics (click on image below to view):

View the Infographic

You can access the latest ATO excess contribution tax statistical report here.



Changing landscape when dealing with excess contributions?

Much has been talked about of the budget announcements impacting contributions, in particular a flat $25,000 concessional contribution cap that will apply across all individuals from 1 July 2012.  Whilst concessional contributions have been impacted, non-concessional contribution amounts will remain at $150,000 p.a. with the bring forward rule available for those under age 65.

Given the statistics that resulted from the last halving of the concessional contribution cap (see post, latest statistics on excess contributions tax), I would envisage further excess contributions tax issues resulting from many individuals 50 and over again requiring to change salary sacrifice arrangements down from $50,000 to $25,000.

The ‘get out of jail free’ card was always handy when playing Monopoly, and importantly we now have something like this available (in several forms) when it comes to dealing with excessive contributions.  These remedies outlined below may assist with any concessional contribution or non-concessional contribution cap breach:

  • Once off-refund of excess concessional contributions – Timing is everything when it comes to making contributions, in particular where employer obligations for SGC (and salary sacrifice) don’t mirror when a contribution is received and reported by a SMSF for contribution cap purposes.  Whilst many people got caught previously in the 2010 FY due to this timing issue, this time around any excessive amount of $10,000 or less can be disregarded by the Commissioner and be re-assessed within the individual’s tax return for the financial year.  Subject to their own marginal tax rate, this may provide a better outcome.  Read previous post on proposed changes to refund excess contributions (to be effective from 1 July 2011).
  • Contributions reserving – Another ‘get out of jail’ strategy was to effectively park any June contributions into a holding account or reserve within the SMSF, subject to the fund’s trust deed not prohibiting the use of reserves.  We have recently seen clarity provided by the ATO in the use of this strategy through ATOID 2012/16, which states that whilst the contribution for income tax purposes is assessable in the year paid into the fund, for contribution cap purposes, it counts in the year in which it is allocated.  See previous post for further details.  The use of a contributions reserving strategy can apply equally to non-concessional contributions.
  • De-minimus test – this change in view in March 2012 from the Australian Taxation Office certainly hasn’t made any headlines, but provided a significant shift in thinking by the Commissioner in collecting large ECT amounts triggered by small amounts.  The ATO are currently working through a series of these assessments previously raised to effectively refund an individual as a result of a disproportionate ECT liability due to a small breach of the concessional and non-concessional cap.  To date, we have no guidance on what constitutes a small amount to be disregarded.  More information on this can be found in my previous post, de minimus to help with contribution maximis
  • Returning Amounts – SIS Regulation 7.04(3) outlines that a fund can not accept a fund-capped contribution; that it a contribution which is greater than three times the non-concessional limit for someone under 65 years of age, or more than the non-concessional limit where someone is 65 years of age older.  Where a single contribution is made into an SMSF that is excessive, the trustees are obliged to return the excessive amount.  ATO ID 2009/29 outlines that there is effectively no timeframe to return the excessive contribution as it should not have been accepted by the super fund in the first place.  As a result, if an individual makes a single excessive contribution they have the ability to retain this amount without being subject to excess contributions tax.

Ongoing management of contribution caps is still the most important role you play to ensure that an individual does not breach their contributions caps.  Whilst still far from perfect, at least the law provides some opportunities to use the ‘get out of jail free’ card to address any potential excess contributions tax issues.

You can budget on a super surcharge!

The media was a buzz over the weekend regarding the proposed budget announcement to increase the contributions tax rate from 15% to 30% for individuals who earn more than $300,000 p.a.

In 1996, the Coalition Government introduced the super surcharge to help ‘fix the mess’ of the previous Labor Government. This time, it appears the Labor Government is introducing this to fix their own mess, as they continue their pursuit to deliver a budget surplus.

Building greater equality into tax concessions isn’t going to come with any major objection as the introduction of the additional tax rate will supposively only affect 1.2% of the population.

Interestingly from reading various media sources, the inclusion of tax-free benefit payments (pension & lump sums) post 60 could capture more people than anticipated if appropriate planning does not occur.  A simple recontribution strategy appears it could affect the calculation should the individual also be making concessional contributions.

It is highly likely the sector impacted the most by this additional contributions tax will be SMSFs. I think it would be a fair assumption that a large number of individuals with taxable incomes in excess of $300,000 are likely to only to be able to contribute $25,000 for 2012/13. This will either be due to the individuals:

  • being under age 50, or
  • the taxpayer is over 50 and their account balance will be greater than $500,000.

Whilst the maximum salary on which an employer has to pay compulsory super is 175,280 (2011/12), some employers may pay the SGC for an individual based upon their salary level.  For somebody earning $300,000, 9% SG contributions would be $27,000, meaning not only 30% contributions tax, but 46.5% excess contributions on amounts above $25,000.

With a broad income test that is likely to apply, there will be very little by way of strategy to avoid reaching the $300,000 threshold.  But, as always, the devil will be in the detail.

Budget night on 8 May 2012 is again shaping up to include further changes to superannuation…

(C) The SMSF Academy 2012
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