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Superannuation industry bodies back excess contributions refund
The Government's proposed changes to the excess contributions rules have been broadly supported by the superannuation industry - with a few caveats.
Under the current legislation, excess contributions to superannuation attract an excess contribution tax (ECT) of 31.5 per cent - in addition to the standard rate of taxation in superannuation of 15 per cent.
The Treasury consultation paper proposes that individuals who make an excess contribution of less than $10,000 from the 2011-12 financial year onwards be given the option to have 85 per cent of the funds refunded, which would then be taxed at the individual's marginal tax rate. However, the option to have the excess contribution refunded is a 'once off' measure, and excess contributions in later years will attract ECT.
In its submission to the consultation paper, the Australian Institute of Superannuation Trustees (AIST) recommended that the refund for excess contributions be made ongoing. In particular, the AIST described the proposal to deny people who exceed their contributions limit by $10,000 the option to have breaches in later years refunded as "draconian".
The AIST also reiterated its position that the $10,000 limit for excess contributions be indexed.
The Association of Superannuation Funds of Australia (ASFA) stated in its submission that the proposal represented a "commonsense solution which gives individuals the opportunity to recover from a mistake and learn from it".
However, ASFA argued that the refunded monies should come out of accumulated interest only - that is, the refunded money should not be part of an income stream.
Additionally, ASFA argued that individuals with several superannuation funds should be allowed to choose which funds the excess contribution is refunded from. ASFA also said that individuals should be allowed to request an extension of the 28-day decision period after the Australian Taxation Office notifies them that they have the option to have their excess contribution refunded.
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