The Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, has released a consultation paper on proposed modifications to the superannuation contributions caps.

 

Under the proposed changes, individuals who breach their concessional contributions caps by up to $10,000 for the first time will be given the option to have the excess concessional contributions refunded to them.

 

Mr Shorten said the changes would make the superannuation system fairer by giving individuals the option to take excess concessional contributions out of their superannuation fund and have them assessed at their marginal rate of tax, rather than incurring a potentially higher rate of excess contributions tax.

 

The excess contributions tax is designed to ensure that individuals adhere to the superannuation contributions caps, and is part of ensuring the substantial tax concessions for superannuation are sustainable and fair.

 

"While the Gillard Government believes the high rate of excess contribution tax is important to encourage compliance with the contribution caps, individuals who breach their concessional contribution caps for the first time should be given a second chance," he said.

 

"We are mindful of the need to minimise the compliance cost on superannuation funds as well as the individual.  The majority of the administrative processes will be handled by the Australian Taxation Office," Mr Shorten said.

 

Excess contributions tax is incurred where an individual exceeds their concessional contributions cap. Concessional contributions include compulsory superannuation guarantee payments, salary sacrifice contributions, and other deductible contributions. Excess concessional contributions are taxed at 31.5 per cent, in addition to 15 per cent tax when contributions are made to the fund.

 

The consultation paper can be accessed from www.treasury.gov.au. Submissions are due by 7 September 2011.