Excess non-concessional contributions should not be withdrawn

If proposed changes to the non-concessional contribution (NCC) cap do not proceed today, or if the effective date is changed, advisers need to ensure clients do not withdraw any excess NCC amounts as lumpsums as this will not fix the problem, according to Colonial First State (CFS).  

The eligibility age for bring-forward contributions of up to $300,000 is set to increase from under 65 to under 67 if the Treasury Laws Amendment (More Flexible Superannuation) Bill 2020 passes the Senate today. 

CFS head of technical services, Craig Day, said passage of the bill would be welcomed as it would provide certainty for clients aged 65 and 66 and would provide peace of mind for fund members who had already made non-concessional contributions of up to $300,000 in 2020/21 prior to turning 67. 

“However, if the proposed changes do not proceed, or the effective date is changed to 1 July 2021, it will be important for any clients who may now have exceeded the existing caps to sit tight and wait to be issued with an excess non-concessional contribution determination and then follow the process to have their excess contributions (plus a deemed earnings amount) released from superannuation,” Day said 

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“If they panic and instead try to withdraw any excess NCC amounts as a lump sums, the withdrawals will not reduce the amount of their excess NCCs and will not fix the problem.  

“It’s also important to realise a trustee cannot just simply ‘reverse’ a contribution a member has made just because it ends up exceeding their NCC cap. In this case, the excess NCC process will still need to be followed.”