A superannuation technical specialist has reminded practitioners excess concessional contributions are included in an individual’s assessable income and specifically in the financial year the breach of the cap occurred.
“The excess concessional [contribution] these days is automatically included in [the super member’s] assessable income for the year of excess [and] not the year [in which they] get the excess notice,” BT Group advice strategy and technical specialist Tim Howard told attendees of an adviser webinar held today.
“[That is] regardless of whether or not they elect to have that excess concessional [contribution] released from superannuation or not.”
Expanding on the theme of the tax treatment excess concessional contributions receive, Howard pointed out the rules are slightly more forgiving with regard to the Division 293 tax.
He recapped for webinar attendees that the Division 293 tax is an additional 15 per cent impost levied on individuals whose income and superannuation contributions exceed $250,000 in a financial year and is applied to the contributions that are over and above that threshold.
“Do your excess [concessional] contributions count towards your super contributions for this purpose … the answer is [no they do not],” he explained.
“So your excess [concessional] contributions are not counted towards your contributions for Division 293 purposes. Because your excess [concessional] contributions are going to become part of the [member’s] assessable income for the year … they don’t count towards [the person’s] super contributions.
“So the bottom line here is the excess concessional contributions won’t attract that extra 15 per cent tax under Division 293 because they are taxed as assessable income at the individual’s marginal tax rate.”
Given this treatment of excess concessional contributions, he pointed out advisers and their clients need to be aware of the adverse consequences that may arise if they breach their cap.
“If you have an additional [assessable] income amount, it may result in the client entering the PAYG (pay-as-you-go) instalment system [or] having their existing PAYG instalments changed,” he said.
“More likely though you might find it could affect their entitlements to the Medicare levy, Centrelink benefits [or] child support. [Basically] anything that looks at [their] total income for the year for which the excess [concessional] contribution will now be included.”
