Q. I have just received a notification from the Australian Taxation Office (ATO) that I have exceeded my Non-concessional Superannuation Contribution Cap (NCC) and will be liable to pay extra tax at my marginal rate. I am mystified how this happened as I only made one contribution of $540,000 in June 2017 and have made no contributions since. What are the consequences and penalties I will face as a result? I am 63 years old.
A. Non-Concessional contributions (NCC) are personal Superannuation contributions for which a tax deduction was not claimed.
Up until 30 June 2017, the limit on NCC was $180,000 per financial year. However, if you were under age 65 on 1 July 2016, you were broadly eligible to contribute up to $540,000 as a “bring forward” of three years’ worth of NCC in the 2016-17 financial year.
On the surface, it would appear that your contribution was within these allowable limits.
Having said that, if you had previously triggered a bring-forward period in an earlier income year (e.g. by contributing more than $180,000 during the 2015-16 year), you would only be able to contribute up to the balance of any remaining bring-forward amount – and not $540,000. As such, it is also critically important to consider NCC contributions made in previous years.
Another trap to look out for is any excess Concessional Contributions that you may have made or received. That is because excess Concessional Contributions, that are not withdrawn from the superannuation system, will be counted toward the NCC cap. In some circumstances, this could lead to a bring-forward period being triggered inadvertently and/or an excess above the NCC cap being created. As such, it is worth investigating whether this may be the case in your circumstances.
Finally, the ATO have recently announced that there has been a system error in reporting to ATO online users who triggered a “bring forward” in either the 2015-6 or 2016-7 tax years. Those affected may incorrectly receive the following message on the Contributions details page in ATO Online: “You have exceeded the bring forward cap and will need to pay extra tax at your marginal tax rate or higher” The ATO have advised that they are fixing the error and hope to have this rectified by 11 December 2017. This may be what has happened in your case.
If you’re not sure, it might be worth contacting the ATO on 13 10 20 to confirm if you indeed have exceeded the cap. Identify when contributions were made to your fund and reported to the ATO and verify that these records are correct.
Notwithstanding the above, if you have exceeded the NCC cap, the ATO will notify you and seek instructions as to how you wish to remedy the situation. Broadly, you will have two options; remove the funds from Super or leave the excess funds in Super.
If you elect to remove the excess, plus an amount of associated earnings, from superannuation, the amount of excess contributions withdrawn will be tax free. However, the associated earnings, on the excess contribution amount, will be taxed at your marginal tax rate with a 15% rebate to offset the Superannuation earnings tax rate.
Associated earnings are not based on the actual earnings on the fund but are calculated using the ATO’s general interest charge which is currently around 8.7% p.a. The period for calculating the associated earnings commences on 1 July of the financial year that the excess contributions were made and ends on the day that the ATO makes the final determination of excess contributions.
If you elect to leave the excess contributions (plus the relevant amount of associated earnings) in superannuation, the excess contributions will be taxed at the highest marginal tax rate which is 49% for the 2016-2017 tax year. Typically, this is not a good idea.
You have 60 days to make an election from the date of ATO notification.