Excess Contributions Tax - getting fairer

In the lead up to the Federal Budget announcement, a hot topic in the superannuation industry has been the ugly, unfair penalties that exist for those who breach the superannuation contributions caps.

Fortunately, the federal government took its first steps towards addressing this issue in its Budget announcement last night.

The government announced it will provide a one-off opportunity for people who make excess concessional contributions of less than $10,000, to have those contributions refunded. As a result, many of these people will no longer incur excess contributions tax, which could have been as high as 93%.

This is a positive step in making the superannuation system fairer and will assist Australians who are trying to save for their retirement within the current rules. For many people making minor, inadvertent breaches of their concessional caps, the proposed legislation will provide relief where they might otherwise have suffered significant tax penalties.

It is important to note, however, that the measures will not assist everybody – more significant breaches will not be eligible for correction and individuals will only be given one opportunity to correct one breach of the concessional cap. There are still a number of people who will continue to be unfairly impacted by this onerous tax.

The legislation will also only apply to excess contributions made from 1 July 2011.

It’s been a long time coming, but I am pleased that the government has taken this important step in making the superannuation system a little bit simpler and fairer for Australians saving for retirement – even if there is more work to do.