Non-Concessional Contributions refer to the after-tax amount, and it should also be brought into the Self-Managed Superannuation Fund (SMSF) within the specified cap limit.
In certain instances, the contributed amount may exceed the available cap limit. We will investigate and determine the appropriate course of action to address such scenarios.
Excess Contribution:
In SMSF tax return, the amount more than individual’s concessional contribution cap will be treated as a non-concessional contribution. When this occurs, an individual will receive an Excess NCC Determination from the ATO.
The Excess Non-Concessional Contributions (NCC) Determination will encompass essential details, including:
– Member’s available NCC cap
– Amount of excess NCCs
– ‘Associated earnings’ amount
– The amount that can be released from superannuation.
For the Excess NCC determination for the financial year 2022-23, a 9.46% average General Interest Charge (GIC) rate from the four quarters of that financial year will be utilized. Please note that GIC may vary based on the relevant years.
How to deal with Excess NCC Determination:
Option 1: Request to release excess NCC (plus associated earnings)
Option 2: Request that the excess NCC be retained in the super fund.
Option 1:
In the scenario where an individual opts to release the entire excess Non-Concessional Contributions (NCC) amount and 85% of the associated earnings, they can make a specific request to release funds from one or multiple superannuation funds within a timeframe of 10 business days.
If the nominated superannuation fund does not have sufficient funds to cover the requested release, the Australian Taxation Office (ATO) will notify the individual. Subsequently, the individual will be granted a 60-day window to make an additional request for the release of the remaining amount from other fund(s).
This process allows flexibility for individuals to manage the release of excess NCC amounts and associated earnings from their superannuation funds in a phased manner, ensuring compliance with regulatory guidelines.
Option 2:
If an individual consciously decides to retain their excess Non-Concessional Contributions (NCC) in their superannuation account, they will be subject to Excess NCC tax, which is typically set at a rate of 47%. In this scenario, there is no need to calculate or consider ‘associated earnings’ as the excess amount is being retained within the superannuation fund.
Conclusion:
Where an individual exceeds their NCC cap, they will typically receive a determination from the ATO. While the excess contributions tax regime offers several choices to the individual, depending on the choice the individual decides to make, the tax outcome may differ significantly.
To make informed decisions, individuals are encouraged to seek advice from financial professionals or tax experts who can provide personalized guidance based on their specific circumstances. This ensures that the chosen course of action aligns with the individual’s financial goals and minimizes potential tax liabilities.
Credits:
Sundaram Shanmugam
SMART SMSF Team
