Minister for Financial Services and Superannuation Bill Shorten introduced the Bill on Wednesday, but debate was adjourned after a second reading.
However, yesterday the deputy speaker reported that the Tax Laws Amendment (Fairer Taxation of Excess Concessional Contributions) Bill had been fully considered by the Federation Chamber and agreed to without amendment. It will take effect from 1 July this year.
Mr Shorten addressed the ECT issue 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.
Under the current harsh penalties, low-income earners pay 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.
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 around $1,100 on average.
