Contributions, Regulation

Excess determination charge still has bite

excess determination charge

The removal of the excess concessional contribution determination charge does not mean the ATO cannot apply it where applicable for past actions.

SMSF members may still face an excess concessional contribution determination charge despite a recent legislative change abolishing it, a technical expert has warned, pointing out the timing behind the change.

Heffron head of SMSF technical and education services Lyn Formica said the charge was likely to have a long tail as legislation to remove it only commenced from 1 July 2021.

“If an SMSF client ends up with excess concessional contributions, historically the ATO would work out the amount of excess, issue a determination and the client would pay the marginal tax rate, less a 15 per cent tax offset, on that excess, on which there is also an interest charge – or excess concessional contribution charge,” Formica said during a recent webinar.

She noted the decision to change it from the start of the new financial year was due to a request from a minor party in parliament that was given to gain support for the passage of other legislation.

“It was a change put forward by the Pauline Hanson One Nation Party and they insisted on that change before passing the [Treasury Laws Amendment (More Flexible Superannuation)] Bill, which would introduce the extension to the bring-forward rule for people aged 65 and 66,” she said.

“Hanson insisted on the change together with the COVID-19 recontributions, which are also effective from 1 July 2021.

“So the excess concessional contributions charge removal is only for contributions from 1 July onwards and we will continue to see that charge for many years to come as it can take some time for those excess determinations to come through.”

Following the removal of the charge, SuperGuardian education manager Tim Miller said the SMSF sector had not been calling out for change in this area as the charge acted as a disincentive to make excess contributions to defer tax liabilities to the ATO.

BT head of financial literacy and advocacy Bryan Ashenden also advised caution in considering an excess contribution strategy as these could be viewed as Part IVA tax avoidance and the ATO was likely to be monitoring any attempt to exploit the absence of the charge.

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