The ATO has begun issuing determinations for excess concessional contributions (ECC) of superannuation for the 2017–2018 financial year. The ATO said it will be issuing a higher volume of ECC determinations for 2017–2018 compared to previous years, following the reduction in the concessional contributions cap to $25,000 for all taxpayers.
Taxpayers who receive an ECC determination should also expect an amended tax assessment, as ECCs are automatically included in an individual's assessable income (and subject to a 15% tax offset). An ECC charge (4.96% for July to September 2018) is also payable to take account of the deferred payment of tax.
Individuals who receive a determination then have 60 days to elect to release up to 85% of their excess contributions from their super fund to the ATO as a "credit" to cover the additional personal tax liability.
Once made, the election cannot be revoked. Therefore, taxpayers should ensure that their super fund has correctly reported their contributions to the ATO for the correct person and financial year before making an election to release any excess contributions.
Electing to release an amount of ECCs can also be important for some taxpayers who wish to prevent the automatic operation of the bring-forward rule for non-concessional contributions.
The proportioning rule does not apply to a release authority payment, so such an amount paid from a super fund will always reduce the taxable component of a superannuation interest in accumulation phase. Therefore, a taxpayer with multiple superannuation interests should consider nominating the release amount to be paid from the interest with the largest taxable component. However, take care if looking to maintain an unrestricted non-preserved component – any benefit payment from a particular superannuation interest will be cashed out first from the unrestricted non-preserved component.
The ATO says tax practitioners and super funds should be prepared for increased numbers of calls from clients about ECC determinations, and funds should anticipate the receipt of release authorities that will require prompt action.
From 1 July 2018, the ATO issues release authorities directly to the taxpayer's super fund so that the individual is no longer involved in releasing such amounts (apart from requesting that the ATO issues a release authority to a specific super fund). The fund must then pay the amount to the ATO within 20 business days (this period has been temporarily extended from 10 business days).
Determinations for taxpayers with a constitutionally protected fund or defined benefit fund will issue at a later time. Determinations for excess non-concessional contributions and assessments for Div 293 tax also began issuing throughout December 2018.