Australians who make excess concessional contributions to their superannuation may benefit from changes announced by the government Thursday.

According to a consultation paper released by Bill Shorten, assistant treasurer and minister for financial services and superannuation, individuals who breach their concessional contributions caps by up to $10,000 for the first time will be given the option to have the excess concessional contributions refunded to them.

"The Gillard administration believes these changes will make the superannuation system fairer by giving individuals the option to take excess concessional contributions out of their superannuation fund and have them assessed at their marginal rate of tax, rather than incurring a potentially higher rate of excess contributions tax," Shorten said.

The excess contributions tax is designed to ensure that individuals adhere to the superannuation contributions caps, and is part of ensuring the substantial tax concessions for superannuation are sustainable and fair.

"While the Gillard government believes the high rate of excess contribution tax is important to encourage compliance with the contribution caps, individuals who breach their concessional contribution caps for the first time should be given a second chance," he said.

As an example, Brendan made an excess concessional contribution of $10,000 for 2012-13. His taxable income for the year is $60,000. Brendan takes the refund option and so pays $3,400 income tax (where $10,000 is taxed at Brendan's marginal tax rate of 34 per cent including Medicare levy). In comparison, under the excess contributions tax regime, Brendan would have paid effectively $4,650.

"We are mindful of the need to minimise the compliance cost on superannuation funds as well as the individual. The majority of the administrative processes will be handled by the Australian Taxation Office," Shorten said.

Excess contributions tax is incurred where an individual exceeds their concessional contributions cap. Concessional contributions include compulsory superannuation guarantee payments, salary sacrifice contributions, and other deductible contributions. Excess concessional contributions are taxed at 31.5 per cent, in addition to 15 per cent tax when contributions are made to the fund.

The consultation paper can be accessed from www.treasury.gov.au.
Consultation Process:

Interested parties are invited to make written submissions on the consultation paper by 7 September 2011.

Submissions may be lodged electronically, by post or by facsimile, to:
The Manager
Contributions and Accumulation Unit
Personal and Retirement Income Division
The Treasury
Langton Crescent
PARKES ACT 2600
Email: recc@treasury.gov.au
Facsimile: 02 6263 3044.