Moves to address the issue were outlined by Minister for Financial Services and Superannuation Bill Shorten in his 5 April announcement of the government’s plan for super reform when he said from 1 July 2013 individuals would be able to withdraw excess contributions with no penalty.
The government yesterday announced the introduction of legislation to repair the harsh penalties, which result in even low-income earners paying the top marginal tax rate of 46.5 per cent on even inadvertent breaches, which can easily result from issues such as delays in employer payments.
The Bill was introduced yesterday morning at around 9:20am, when Mr Shorten read the explanatory memorandum. Following a second reading of the Bill, debate was postponed until today.
In a statement yesterday, Mr Shorten said the changes would make superannuation taxation “fairer for low- and middle-income earners who inadvertently breach the concessional contributions cap because they will be taxed at their marginal tax rate rather than the top marginal tax rate”.
However, Mr Shorten did not address the potential for some people to wind up paying a huge 93 per cent penalty on contributions that inadvertently breach both the concessional and non-concessional caps.
“The government’s reforms will ensure that individuals are taxed on excess concessional contributions in the same way as if they had received that money as salary or wages and had chosen to make a non-concessional contribution,” he stated.
“The government will tax excess concessional contributions at the individual’s marginal tax rate, plus an interest charge, rather than the top marginal tax rate.”
The government estimated the reform would reduce the tax liability of around 40,000 people in 2013/2014, by approximately $1,100 on average.
Financial Planning Association (FPA) chief executive Mark Rantall welcomed the measure, which he described as “a genuine attempt by legislators to bring greater balance to the process of taxing excess contributions to super”.
“The FPA has been calling for change to the unfair penalties for excess concessional contributions for many years,” he said.
“It is vital to regain balance and equity in our taxation system, and the key area of taxation of superannuation's concessional contributions is the right place to stay focused.”
