Dealing with Excess Concessional Contributions

Dealing with Excess Concessional Contributions

Last week I mentioned the unfortunate non-concessional contribution cap consequences of an excess concessional contribution. This week we’ll look at how to respond to an excess CC determination.

The first step is to check the facts. If the determination of the excess is wrong, take immediate action to correct the ATO’s records. There is a 60-day time limit to adhere to so act quickly. If the determination is correct, but there are special mitigating circumstances, apply to have some/all of the concessional contributions disregarded. Special circumstances do not include:

  • financial hardship from having to pay extra tax
  • thinking the assessment or determination is unfair
  • not meaning to exceed a cap
  • not knowing about or misunderstanding the law or facts
  • receiving incorrect or incomplete professional advice
  • making a mistake.

If the excess determination is correct, the value will be added to the member’s personal assessable income in the year the contribution was made and taxed at the member’s marginal rate less a 15% tax offset. If the contribution was made prior to 1 July 2021 an excess contribution charge will also be included.

The member must decide on whether to withdraw the excess or leave it in the fund.

The withdrawal option allows the member to release up to 85% of the excess. The fund the member nominates is sent a release authority by the ATO. The fund will then release the amount to the ATO, not the member. The ATO will credit it against the member’s tax liability and refund the balance to the member. The contribution will not be counted against the members non-concessional cap.

If no action is taken, the same personal tax liability will be assessed but the excess will now be counted against the member’s non concessional cap with potential further consequences.

The member may exceed their non-concessional cap if:

  • they have a total super balance above the general transfer balance cap and their non-concessional contributions cap is nil.
  • they have already triggered the bring-forward arrangement for non-concessional contributions and used up their cap.
  • they are not entitled to the bring-forward arrangement and have breached their standard cap.
  • they have unintentionally triggered the bring-forward arrangement for non-concessional contributions.

It may be a couple of years after the excess concessional contribution is made before the determination is issued. During this period non-concessional contribution strategies may have been implemented so it is imperative that the member investigates the matter immediately. There have been instances where the member hasn’t bothered as the breach was minor. Unfortunately, the subsequent non-concessional cap breach was not.