So you or your employer have mistimed contributions or doubled up on a payment to you super. This can happen in a number of ways:
- Employer paid June 2017 contribution in July last year without you knowing;
- You worked out your salary sacrifice based on $25,000 less employer contributions on your salary but forgot they pay SG on bonuses too!;
- Employer brought forward June 2018 contributions to ensure they got a tax deduction early;
- You received a spouse contribution but did not realise this counted towards your cap;
- You, your tax agent or super fund accountant has made an error in claiming tax deductions for nonconcessional contributions
- Just a genuine mistake.
How do you manage the mistake?
Do nothing until the ATO issues you with a Determination that you have exceeded one of your caps. You cannot just take the funds back out of your SMSF. The ATO will issue the determination and then provide you with a Release Authority which can be processed on paper or (coming soon) via My.Gov.au/mygov
You need to approve the commutation of the excess contribution amount from your account by the ATO as soon as possible after you receive a determination. This will limit the amount of penalty interest that you will be liable to pay.
If you exceed the concessional contributions cap
If you have excess concessional contributions the ATO will issue you with an excess concessional contributions determination. The determination advises you that your excess concessional contribution amount has been included as assessable income in your tax return. It also advises what actions are required of you. The excess concessional contribution determination contains the:
- amount of the excess concessional contributions
- amount of the excess concessional contributions charge
- period of the excess concessional contributions charge
- rate of the excess concessional contributions charge.
With your determination, you will also receive an income tax return Notice of assessment/ Notice of amended assessment.
If the contribution information within the determination is incorrect, either:
- contact your super fund accountant/administrator and your personal tax agent to have them re-report any incorrectly reported contributions
- amend your tax return if you did not claim the correct personal super contribution deduction in your tax return, or did not claim it at the correct label.
If you exceed the non-concessional contributions cap
You now have 60 days (see details of how this has improved below) from the date of your determination, to choose one of the following options:
- Option 1 – Release the excess from your super funds
You can elect to release all your excess non-concessional contributions and 85% of your associated earnings from your super funds.
The full associated earnings amount stated in your determination will be included in your assessable income and taxed at your marginal rate of tax. A non-refundable tax offset equal to 15% of your associated earnings is applied to recognise any tax paid by your super fund.
The ATO will issue a release authority to the super funds you nominate and they will pay this amount directly to the ATO.
- Option 2 – Leave your excess non-concessional contributions in your super funds
If you choose not to release your excess non-concessional contributions from your super funds, you receive an excess non-concessional contributions tax assessment. The excess amount is taxed at the highest marginal tax rate. IF you have more than one account/fund then you must elect a fund to release your excess non-concessional contributions tax from.
You must select this option if your only fund is a defined benefit.
If you do nothing
The ATO will ask your super funds to release and send amounts to them. They will also amend your income tax assessment to include your associated earnings. You will pay tax on your associated earnings at your marginal tax rate. Because of the delay the tax on associated earnings will be higher.
The ATO will use the money released to pay any tax or Australian government debts and refund any remaining balance to you
If you have no money left in super for any reason, they will amend your income tax assessment to include your associated earnings amount. You will pay tax on your associated earnings at your marginal tax rate.
If your only super interest is held in a defined benefit fund or a non-commutable super income stream and the fund cannot or will not voluntarily release The ATO will send you an excess non-concessional contributions tax assessment
STOP! my head is hurting!
Finally some simplification! From 1 July 2018 the release authority process for excess contributions and Division 293 liabilities will be consistent and streamlined. The changes will apply to the following release authorities:
- excess concessional contributions
- excess non-concessional contributions
- excess non-concessional contributions tax
- division 293 due and payable
- division 293 deferred debt.
The changes include:
•Standard 60 day time frame for when an individual could request to release an amount from super (previously this ranged between 21 to 60 days)
•The individual makes a request when replying to the ATO’s determination (this can be done via their myGov account), but it is the ATO that submits the release authority to the super fund. Prior to the rule change, individuals could also submit the release authority directly to the super fund
•The payment is always made to the ATO, credited to the individual’s tax liability with any residual amounts then paid to the individual
•The default election for excess non-concessional contributions is to release the contribution and 85% of the associated earnings. This prevents what is generally the more detrimental position of applying the top marginal tax rate on the excess contribution unreleased, from occurring. For example this may have occurred in the past if the individual is away on holidays when they receive the notice of determination
Temporary timeframe extension for SMSF and APRA funds to release the money.
From 1 July 2018 the Commissioner of Taxation has temporarily extended the timeframes for the return and payment of streamlined release authorities from 10 to 20 business days.
The change applies to release authorities for excess contributions and Div 293 liabilities.
This temporary extension will continue until the ATO digitises their release authority process. When they change the process from paper to being managed via SuperStream the system will return to the legislated 10 business days.
This extension was given after practitioners raised concerns over their ability to meet this legislated time frame to return their release authority statement, with a paper form being the only channel available. Yeah like we trust Australia Post to get anything back quickly!
For further information please see the following https://www.ato.gov.au/…/Release-authority-streamlining-up…/
I hope this guidance has been helpful and please take the time to comment. Feedback always appreciated. Please reblog, retweet, like on Facebook etc to make sure we get the news out there. As always please contact me if you want to look at your own options. We have offices in Castle Hill and Windsor but can meet clients anywhere in Sydney or via Skype. Just click the Schedule Now button up on the left to find the appointment options.
Liam Shorte B.Bus SSA™ AFP
Financial Planner & SMSF Specialist Advisor™
Tel: 02 98941844, Mobile: 0413 936 299
PO Box 6002 BHBC, Baulkham Hills NSW 2153
5/15 Terminus St. Castle Hill NSW 2154
Corporate Authorised Representative of Viridian Select Pty Ltd ABN 41 621 447 345, AFSL 51572
This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.
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