Imagine the commissioner makes a determination that a taxpayer named “Luke” has excess concessional contributions of $1,500 in the 2014-15 financial year. He amends Luke’s tax assessment accordingly, resulting in an increase in Luke’s tax liability of $225 plus an additional $20 of interest charge. Luke receives notice of this determination and his amended assessment on November 18th, 2015. Luke is entitled to elect to release up to 85% of his excess concessional contributions (ie $1,275) by notifying the Commissioner within 21 days.
On November 20th 2015, he elects to release $750 from his superannuation interest, held by ABC Superannuation. The commissioner issues a release authority to ABC Superannuation on November 21st 2015, identifying the relevant interest and the requested amount. On November 25th 2015, ABC Superannuation pays $500 to the Commissioner. ABC Superannuation notifies the Commissioner of the payment and that the payment was $250 less than the $750 identified in the release authority as this $500 was the maximum available release amount.
The commissioner credits the $500 to Luke. After accounting for his outstanding liabilities of $245, Luke is entitled to a refund of $255.
The commissioner also notifies Luke that ABC Superannuation has not released the full amount he identified in his election. Luke is entitled to nominate a further superannuation interest from which to release the remaining $250. He provides a further election identifying his interest in XYZ Superannuation on December 13th, 2015.
The Commissioner issues a release authority to XYZ Superannuation and XYZ Superannuation pays $250 to the Commissioner on December 19th, 2015.
The commissioner credits the $250 to Luke. As Luke has no further outstanding tax debts, he is entitled to a refund of the full $250. In total, Luke has released $750 from his superannuation interests, receiving $505 after meeting his tax liabilities of $245.
Is that all clear now?
Despite the touted tax savings for some taxpayers, the 54-pages of legislation introduced to implement the proposed “fairer” tax treatment of excess concessional contributions will add another layer of complexity to an already complex system.
While the proposed changes seek to improve “fairness” and “equity” in the excess contributions tax regime, they arguably fail the requirements of “efficiency” and “simplicity” in the design of any tax system. Furthermore, the proposed changes will not apply to excess non-concessional contributions (ie after-tax contributions) which will continue to be hit with 46.5% tax.
As I write this article, the legislation had been passed by the house of representatives but was yet to pass the senate. If that does not happen before parliament rises, the bills will lapse and we will be left with the existing unpopular regime.
Super is not getting any simpler.
Terry Hayes is the Editor-in-Chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.
Terry Hayes is the editor-in-chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.
