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Contributions, Superannuation

Excess contribution change not a strategic break

excess contributions charge

The scrapping of the excess concessional contributions charge in the Your Future, Your Super laws is not an opportunity to gain a tax benefit.

A technical specialist has warned advisers and their SMSF clients not to view the changes to the excess concessional contributions charge contained in the Your Future, Your Super legislation as an advantageous tax opportunity as adverse consequences for the fund can still result.

“[The amendment] does raise some questions. [Should] an individual force that issue knowing that they are [effectively] getting a deferral of any tax by maybe pushing contributions much higher than [they] would otherwise [do]?” Smarter SMSF chief executive Aaron Dunn asked.

“The risk I say there to you is that the ATO may still look at applying Part IVA [of the Income Tax Assessment Act] in those circumstances because there is some tax arbitrage that may [benefit an individual] over a period of time because of the fact that they’re not getting any pay-as-you-go withholding obligations on that [excess] amount from the point in time which it would have otherwise been treated as wages.”

The legislative change means high-income earners whose remuneration levels result in their 10 per cent superannuation guarantee contributions exceeding the $27,500 concessional contributions cap will no longer incur a penalty interest charge on the excess amount applied from the start of the financial year in which the cap breach occurs.

“What we’re now going to see [is] this charge being removed for the 2021/22 financial year and therefore we will just see that natural readjustment through a refund mechanism back into the individual’s personal tax return. We will still see a carry over, if they [decide not to do that], to [their] non-concessional contributions and they will pay the same rate of tax as they may pay at a marginal rate there, but there is no charge that will apply that further into the future,” Dunn noted.

“So it’s not necessarily an opportunity as I see here, but a simplification, in essence, of the process.”

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