By Mark Silvester

The focus of this article is on ‘concessional contributions’ – those superannuation contributions for which a tax deduction is claimed either by an employer, or by a self-employed individual.

Currently, individuals aged 50 and over can make concessional contributions of up to $50,000 a year without incurring a liability for excess contributions tax (ECT). This transitional cap is scheduled to expire from 1 July 2012.

Some time ago, the government announced that from 1 July 2012, individuals aged 50 and over with total superannuation balances below $500,000 can make up to $50,000 in concessional superannuation contributions for the 2012-13 and subsequent financial years without incurring a liability for ECT. All other individuals will have a concessional contribution cap of $25,000. However, the issues of ‘how’ and ‘when’ to measure this $500,000 superannuation balance have been keenly debated. Unfortunately these issues have not yet been fully resolved (at the time of writing, no formalised legislation had received royal assent).

While the industry is still somewhat in limbo regarding the proposed changes, the current situation is as follows.

On 29 November 2011, the Minister for Superannuation and Financial Services announced that, in response to industry feedback, the government will undertake further consultation on compliance cost issues raised by industry in relation to the higher concessional contributions cap for those aged 50 and over.

Subject to the outcome of the consultation, this measure will require super fund providers to report contributions and balance information to the ATO for this particular age group. This information will be used to calculate the individual’s cap, the amount of any excess contributions and the amount of ECT payable.

What is the timing for these changes?

Eligible individuals will be able to access the higher concessional contributions cap from 2012-13. They will self-assess their eligibility to the higher cap at the commencement of the year and plan their contributions accordingly.

The earliest date for new and changed reporting from super funds will be reports required for 2011-12. It may be difficult for industry to change their systems to modify reporting to meet this requirement, and the ATO will consult further on this aspect.

How can members find out whether they are close to, or have already exceeded, the cap?

Individuals aged 50 years and over who want to take advantage of the higher concessional contributions cap will be responsible for working out their total superannuation account balance and tracking their contributions during the year.

The value of an individual’s superannuation balance will be provided by their super fund on their annual member statement. For some different types of accounts, such as for defined benefit accounts, the value will be calculated by a set methodology. Individuals can contact their fund to check their account balance.

To assist individuals to determine their eligibility to the higher cap, the ATO will publish account balance information online. However, the information will be incomplete as it is based on member contribution statement reporting lodged before the start of the measure.

What information will funds need to report to the ATO, and when, for the ATO to administer this measure?

Currently, funds report member contributions and balance information annually to the ATO only if contributions have been made for their member. Depending on the outcome of further consultation, it is likely that funds will be required to report member information for all accounts held by their members aged 48 years and over for the following reasons:

(a) the higher concessional contributions cap is based on the total value of an individual’s superannuation interest; (b) industry has advised that the earliest date the value may be reasonably assessed is two years prior to the end of the financial year the contributions are made.

From the above it can seen that the ‘nitty-gritty’ details of the implementation are far from finalised. We can expect to see further changes or refinements as we approach the end of the 2012 financial year. Watch this space!

Adapted from information supplied by the Australian Taxation Office