An amendment addressing the inequitable excess contributions tax regime passed through the Senate on Friday in a move that has been welcomed by the industry.
The Tax Laws Amendment (Fairer Taxation of Excess Concessional Contributions) Bill 2013 passed through the House of Representatives on June 20 and was originally flagged in former Minister for Financial Services and Superannuation Bill Shorten’s April 5 announcement of the government’s plan for super reform.
Under the previous regime, low-income earners paid the top marginal tax rate of 46.5 per cent on inadvertent breaches, which can stem from issues such as delays in employer payments.
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”.
SMSF Professionals’ Association of Australia’s (SPAA's) senior manager for technical and policy, Jordan George, told SMSF Adviser the ECT regime has been a prominent issue for SPAA since 2010 and the association is pleased with the outcome.
“It strikes the right balance between having contribution caps, which are needed for having a sustainable retirement income system, but not being overly harsh [to] people who are trying to provide a retirement income but may make a mistake,” said Mr George.
“I think that’s a very important outcome for any superannuation saver and especially for SMSF trustees,” he added.
The Institute of Chartered Accountants Australia, which has been advocating a more “reasonable” approach to excess superannuation contributions, has also welcomed the amendment.
“This outcome is a win for common sense and will encourage greater confidence in the superannuation system as a means of saving for a sustainable, self-funding retirement,” said chief executive officer Lee White.
“The existing ECT system unduly penalises individuals who, when trying to save for their retirement, make an inadvertent error in breaching their concessional contributions cap.
Mr White added that a sturdy and sustainable superannuation system is vital to Australia’s ageing population.
“[The] legislation offers a good step in building confidence Australians can have in a superannuation system that addresses our future priorities,” he said.
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