ATO, Contributions

Don’t abuse excess charge removal

excess concessional contributions

The removal of a charge on excess concessional contributions should be seen as a favour to super fund members and not an opportunity to exploit its absence.

Attempts to exploit the removal of a charge on excess concessional contributions should be avoided as they will be observed by the ATO and also be subject to other taxation laws.

BT head of financial literacy and advocacy Bryan Ashenden said questions had been raised about people making excessive salary sacrifice contributions or other excess concessional contributions to get money into the superannuation regime and push the tax consequences to the end of the financial year.

“That is always the risk and that is something that could occur, but there were always consequences that come out of that approach,” Ashenden said during a recent BT Academy webinar.

“If there is no excess concessional contribution charges, people might intentionally exceed to get their funds into the tax-effective environment, but we always have to consider is there a question that this strategy potentially gives rise to a Part IVA tax-avoidance issue.

“At the end of the year you could look to see that you’re going to get some of that money back out of the system, but you will pay an appropriate level of tax above the concessional rate that applies within the superannuation environment.

“Also remember that if we are excessively salary sacrificing, for example, to get excess concessional contributions into the regime until we get to the end of the financial year and work out about whether we can withdraw those additional amounts, the money is locked away.

“It might be invested in a more concessional environment, but it is locked away and can’t be touched and there is the potential the ATO could void any strategy as a tax-avoidance arrangement.”

He said the removal of the charge, which was an amendment to the Treasury Laws Amendment (More Flexible Superannuation) Bill 2020 that introduced the three-year bring-forward rule for people aged 66 and 67, was not designed to be exploited, but to assist people who had made inadvertent excess contributions.

“It’s not changing the way that you actually deal with the taxation of an excess concessional contribution. This is about the additional charge that can arise in that sort of situation,” he said.

“This change is designed to facilitate those situations where, for example, you have an overlap, people end up with five quarters worth of super guarantee contributions coming into one particular year purely because of a timing issue, and not having to apply to the ATO for any remission of those penalties, which now will not be imposed.”

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