Complicated super contribution rules are about to get… more complicated! Draft legislation was released in December to provide some people a once-off chance to be refunded up to $10,000 of excess concessional (employer or deductible personal) superannuation contributions made after July 2011.

Way back in 2007, the then Liberal Government made significant changes to the superannuation system providing significant additional tax benefits to retirees and creating incentives to get more money into super. To control the amount flowing into super, the Government placed limits on concessional and non-concessional (after tax non-deductible) contributions. The limit was originally $50k for concessional contributions for people under 50 years of age.

With the Global Financial Crisis, the Rudd Labor Government halved that limit to $25,000 (and there is a once off opportunity for people over 50 to make up to $50,000 contribution in the 2012 financial year).

Individuals will be charged top-up tax of 31.5% of the contributions in excess of those limits under the existing rules.

Many people were stung by this top-up tax over the last 18 months as the Tax Office started to issue assessments.

Recently Assistant Treasurer, Bill Shorten has admitted he was required to pay the top-up tax on his own circumstances.

Now we have a complicated attempt to mitigate the problem.

The law change will:

+ Apply only once for a taxpayer;

+ Give people an option to have excess contributions released from the super fund to the Tax Office;

+ Have a limit of $10,000 of excess concessional contributions;

+ Be assessed as income at the individual’s marginal tax rate;

+ Effectively tax the person at their marginal tax rate with a refundable credit for the tax already paid inside the superannuation fund on the contributions;

+ Potentially give rise to a refund of part or all of the excess contributions (subject to the person’s tax position); and

+ Require acceptance of the kind offer from the Tax Office on an approved form within 28 days.

It’s good that the Government has tried to address this punitive tax problem but the solution is overly bureaucratic and does not address the problems people faced in the 2007, 2008, 2009, 2010 and 2011 financial years.

It is important to be aware of this proposed change and more particularly, to carefully manage your super contributions. Take care if you have two sources of income (like a doctor working in private practice and a public hospital).

Presumably, after the consultation period, the legislation will be put before Parliament in the first half of 2012 and it will have effect for the current financial year.

‍WTB 2012/34