In its formal response to the Federal Government’s consultation paper, Refund of Excess Concessional Contributions, the Self-Managed Super Fund Professionals’ Association of Australia (SPAA) has put the case that raising the annual superannuation caps would achieve a far better result than the proposed rectification measures. Under the measures, the Government will provide eligible individuals with the option to have excess concessional contributions of up to $10,000 refunded and assessed as income at their marginal tax rate, rather than incurring excess contributions tax. This measure will apply where an individual has made excess concessional contributions of up to $10,000 in a particular year and will only be for breaches in 2011-12 or later years, and only the first time the breach occurs. The consultation paper notes that the majority of taxpayers who exceed their concessional contributions cap do so by less than $10,000 and this is why $10,000 has been chosen as the maximum refund amount. In SPAA’s view, the severity of excess contributions tax, coupled with limited options for rectification, is the most significant issue confronting the superannuation sector. While we acknowledge the need to deter people from making excess contributions, we believe the tax applicable to excess non-concessional contributions is too penal given that the vast majority of excess contributions are made inadvertently. The refund measure falls far short of a working solution to rectify the problem. For example, the measure provides no relief to individuals who inadvertently exceed their non-concessional contribution cap or individuals who on the first occasion inadvertently exceed their concessional cap by more than $10,000. Furthermore, linking eligibility for the refund to a dollar threshold is likely to deny many taxpayers the option of a refund even though their circumstances are substantially the same as those of other taxpayers who are eligible for a refund.
For example, an individual who exceeds their concessional cap by $10,000 will, assuming all other conditions are satisfied, be eligible for a refund while an individual who exceeds their concessional cap by $10,001 will not be eligible for a refund. It is difficult to defend the proposed refund measure in these circumstances. SPAA is also concerned that limiting eligibility to a “one off ” only breach of the concessional cap will deny many individuals who breach the concessional cap in multiple years, through no fault of their own, the option of a refund. As an employer’s SG obligation has no regard for salary and wages paid to their employee by other employers, it is possible for some employees with multiple employers to receive total salary and wages in a financial year for SG purposes that will generate annual SG contributions in excess of $25,000. Employers are legally obliged to pay SG contributions on behalf of those employees despite the fact that their employee may incur excess contributions tax for some or all of the contributions. And if a $10,000 breach is the proposed number, then why not simply increase the concessional cap by $10,000?
We acknowledge there will be a cost to Government revenue but there will also be a cost to Government revenue if the proposed refunding regime is introduced. The proposed mechanism for refunding excess concessional contributions will also require the Tax Office to match data, communicate with members and funds and amend income tax assessment notices. By introducing this proposal – together with the $50,000 concessional cap proposal for taxpayers over 50 with an account balance under $500,000 – layers of additional complexities and cost would be added when the same result could be achieved by simply increasing the caps. We acknowledge what the Government is trying to achieve but surely it makes sense to spend taxpayers’ money on raising the contributions caps rather than spending it on measures that will only increase the complexity of the superannuation system. The 50 per cent reduction in the concessional contribution cap, which was announced in the 2009 Federal Budget, continues to deny many thousands of Australians, who typically have a greater financial capacity to save for their own retirement later in life, the opportunity to do so.
In previous submissions to Treasury, SPAA has outlined several different measures that could be introduced by Government to address the excess contributions tax problem. These measures include an annual SG opt-out option for employees with excess concessional contributions and a refunding mechanism for excess non-concessional contributions. Earlier this year, SPAA, along with some other industry associations, wrote to the Government calling for the concessional contribution cap to be increased to $35,000 for all individuals over age 50. This proposal was recommended as an alternative to the Government’s proposed $50,000 concessional contribution cap for individuals aged over 50 with a superannuation account balance under $500,000. It was also recommended on the assumption that the Government would commit to increasing the contribution caps to their pre-July 2009 levels as soon as it is fiscally possible. SPAA has been advocating for some time for the caps to be restored to what they were before the 2009 Federal Budget – and raising the concessional cap now by $10,000 would be a good first step.
