Andrea Slattery

SMSF trustees have notched an important victory with the Senate vote to remove the punitive tax rates on excess non-concessional contributions made to superannuation funds.

The SMSF Association CEO/Managing Director Andrea Slattery says the Senate vote ends a “draconian” system that “severely punished” trustees for infractions that were rarely intentional.

The overly punitive tax result occurred due to excess non-concessional contributions being made from the post-tax income of the member. Under the former regime, taxpayers could pay up to 94% on excess non-concessional contributions.

Assistant Treasurer Josh Frydenberg has said the Tax and Superannuation Laws Amendment (2014 Measures No.7) Bill will make the “taxation of excess after-tax superannuation contributions fairer”.

The new legislation allows superannuation fund members to withdraw the non-concessional contributions that exceed the non-concessional cap from their superannuation.

Investment earnings associated with a fund member’s excess non-concessional contribution will be included in their assessable income and taxed at their marginal tax rate.

The investment earnings are calculated through a proxy earnings rate by applying the ATO’s General Interest Charge rate to the excess non-concessional contribution.   A 15% tax offset is then passed on to the superannuation fund member as compensation for tax paid on the investment earnings.

Slattery says that the SMSF Association believes that this arrangement struck the right balance between not excessively punishing inadvertent contribution mistakes and deterring people from abusing the superannuation contribution caps.

“We congratulate the Government on allowing taxpayers to refund excess non-concessional contributions, removing the overly punitive outcomes.

“The Association has advocated for this treatment of excess non-concessional contributions for many years and is pleased to see the Government has responded to our concerns.”

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