Excess Contribution Charge
As a general rule, Excess Contribution Charge (ECC) is levied on taxpayers whose concessional and non-concessional contributions exceeded the annual cap. The cap on the contributions applies from the 1st July 2007. The cap for the FY 2013/14 applicable to concessional super contributions is $25,000, unless you are aged over 59 on the last day of the financial year 2013/14, which would then increase further to $35,000.
Fairer taxation of the Excess Concessional Contributions
There has been a change applying from the 2013/14 financial year onwards. How is the excess tax calculated then under the new rules? Once the annual cap of $25,000 has been reached, any amount contributed above the cap is simply added to your taxable income, and tax calculated at the marginal rate.
For instance, James’ superannuation cap has been exceeded by $3,000, i.e. the amount contributed as Superannuation Guarantee Charge (SGC) by the employer totalled $28,000. If James taxable income is 190,000 in the FY 2013/14, his marginal tax rate that applies is 45% plus 1.5% Medicare. Therefore the excess contribution tax is calculated at the marginal rate of 46.5% applied on the excess of $3,000. However, James will decrease his tax liability by claiming the tax already paid on the contributions within the Superannuation fund, i.e. 15%.
Under the previous rules, the Excess Contributions Tax was simply 31.5%, in addition to the 15% contribution tax applied on the contributions when going into the fund. Such a tax rate would then reach the maximum marginal rate of 46.5%.
The taxpayer who faces an increased tax liability as a result of exceeding the cap amount may use of up to 85% of the excess concessional contributions from the superannuation fund to help to cover the income tax resulting from adding the excess to the taxable income.
Please see for further references:
https://www.ato.gov.au/uploadedFiles/Content/SPR/downloads/SPR38466factsheet.pdf
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