Honest mistakes will be forgiven under changes to concessional cap breaches, according to new rules proposed in the 2011 Federal Budget.
Starting 1 July 2011, Australians who breach the concessional contributions cap by up to $10,000 can request that these excess contributions be refunded.
But offenders only get one chance to make a mistake.
“The Government understands that individuals make mistakes and should not be penalised the first time they exceed the concessional cap for less significant and inadvertent breaches,” it said in a statement.
The changes will give individuals the option to take excess concessional contributions out of their superannuation fund and have it assessed at their marginal rate of tax, rather than incurring a potentially higher rate of excess contribution tax.
The Financial Services Council applauded the changes.
“The creation of a flexible refund mechanism for inadvertent excess superannuation contributions up to $10,000 recognises that most people make honest mistakes for which they should not be inappropriately penalised.”
However, the Self-Managed Super Fund Professionals’ Association of Australia (SPAA) says the measures fall short, as the new rules only apply to breaches from 1 July, 2011 onwards and only for first-time mistakes.
“This is a positive step aimed at reducing instances of inadvertent concessional cap breaches but this measure provides no relief to individuals who may have incurred excess contributions tax in [previous] financial years,” said Andrea Slattery, SPAA CEO. “It will also provide no relief for individuals who inadvertently breach their non-concessional cap either before or after 1 July, 2011,” she added.
“SPAA believes this measure will result in more middle Australians being caught by inadvertent errors as they try to make legitimate moves to save for a comfortable, self funded retirement.”
The changes augment other reforms introduced in the budget, including the increase in the concessional caps for the over 50s (with balances under $500,000) from 1 July 2012, the gradual increase in the SG rate to 12 per cent, and the new super contribution of up to $500 for low income earners.
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 Government will consult with the superannuation industry on the implementation of this measure.
While the SPAA supported the move which allows for the $25,000 in additional concessional contributions to apply to the indexed $25,000 concessional cap for the over 50s from July 2012, it was disappointed that the $500,000 threshold would not be indexed.
“This measure is a step in the right direction, but the fact that the $500,000 threshold is unindexed means that each year, fewer middle Australians will qualify for access to the higher annual superannuation caps needed to save for a comfortable retirement, and is a short-sighted move,” Slattery said.
Collections: Mortgage News