By Colin Lewis, Head of Strategic Advice, Fitzpatricks Private Wealth
October 2024

By now you should’ve lodged your tax return as the October 31 deadline has passed – unless you’re lodging under a tax agent lodgement program.

What’s next?

You’ll receive a notice of assessment from the ATO – if you haven’t already.

In addition, the ATO will start issuing certain superannuation tax assessments and determinations to affected taxpayers as it uses information from tax returns coupled with information reported by super funds.

Division 293 tax assessments

Division 293 tax applies to those who had income together with pre-tax concessional contributions greater than $250,000 in 2023-24.

Affected taxpayers pay an extra 15 per cent tax on those contributions (within the cap) that exceed the $250,000 threshold.

If you receive a Division 293 tax assessment, you’re personally liable for the tax and it must be paid within 21 days to avoid penalties.

To pay it, you can elect – within 60 days – to have the amount released from super.

If you do this, the ATO will issue a release authority to your nominated fund and it’ll pay it directly to the ATO within 10 business days.

Importantly, while you have 60 days to make this election, your tax bill remains due within 21 days of the assessment.

To avoid penalties, pay your tax bill by the due date even where you elect to have it released from super.

The ATO will refund the released amount to you – unless you have other tax or government debts – where your tax liability is extinguished before the ATO receives it from your fund.

Making this election is a clever way of getting money out of super where you’re concerned about the proposed new tax on earnings on superannuation balances greater than $3 million and want to reduce your balance – particularly where you haven’t met a condition of release, like retirement.

Unanticipated excess non-concessional contribution (ENCC) determinations

Making a personal deductible contribution isn’t hard but some people end up with a headache.

Take Harry who made a deductible contribution in June 2024 to reduce his tax bill.

Harry did things right.  He lodged a notice of intent (NOI) to claim a tax deduction and received an acknowledgement from his fund – 15 per cent tax was deducted from his contribution.

He didn’t touch the contribution as rolling it over to another fund, withdrawing it, or starting a pension before lodging the NOI mucks up the tax deduction.

Harry lodged his tax return on time.

Harry’s total super balance (TSB) was $2 million on June 30, 2023.  Being more than $1.9 million, he was ineligible to make a non-concessional contribution.

Then there’s Hermione who made a $27,500 personal deductible contribution in June 2024.  She also couldn’t make a non-concessional contribution having made one of $300,000 in 2021-22 and was in the bring-forward period.

And there’s Ron who in 2023-24 made a $20,000 deductible contribution and $110,000 non-concessional contribution – his TSB was $800,000 on June 30, 2023 – but hasn’t lodged his tax return.

Harry, Hermione and Ron all received ENCC determinations from the ATO – not uncommon.

How’s this possible when Harry and Hermoine only made personal deductible contributions and Ron’s non-concessional contribution was within the cap?

Important to understand the process

Personal contributions are non-concessional subject to the non-concessional contributions cap unless claimed as a tax deduction – lodge an NOI, have it acknowledged and claim it on the tax return.

The ATO makes its assessment using information from tax returns and super funds and can be quick in issuing ENCC determinations.

Where tax returns are lodged but not processed (Harry and Hermoine’s case) or not lodged at all (Ron’s case), contributions remain non-concessional.

With Harry and Hermoine being ineligible to make non-concessional contributions, and Ron’s total contributions exceeding the non-concessional contributions cap, they all ended up with an excess.​

What happens if I exceed the NCCs cap?

An ENCC determination explains your options and you have 60 days to decide.

Option one allows you to withdraw the excess and 85 per cent of associated earnings – these earnings are then taxed at your marginal rate plus Medicare levy less a 15 per cent tax offset for tax already paid.

‘Associated earnings’ approximates earnings on the excess while in super​.  It’s an average of the general interest charge rates in the financial year the excess arose, applied on a daily compounding basis from July 1 in the year of the excess to date of the determination – clearly, not what your fund earned.

Option two is to leave the contributions and earnings in super and have the excess taxed at 47 per cent.  This option must be selected if your only super is in a defined benefit fund.

Do nothing and the ATO automatically defaults to option one.

So, you can have excess contributions refunded and pay tax on the earnings only, or have the excess taxed at 47 per cent – a no brainer.

Back to Harry, Hermoine and Ron

If the ATO doesn’t process their tax returns before their determinations are actioned, then the problem is threefold.​

First, money comes out of super that needn’t have come out.​

Second, they pay tax on something – associated earnings – they wouldn’t have normally paid tax on.​

Third, in Harry’s case, he can’t get the money back into super if his TSB was $1.9M or more on June 30, 2024.​

Can I avoid this?

Retirees under 67 and the self-employed and have no alternative but make personal deductible contributions, whereas employees can make salary sacrifice contributions.

Salary sacrifice contributions are employer contributions and thus concessional contributions from the outset – you cannot end up with an ENCC determination.

Generally, salary sacrifice contributions are automatically made on a regular basis – implementing ‘dollar cost averaging’.

Regular deposits into an investment at regular intervals is a powerful way to invest – builds exposure to growth assets, reduces the risk of investing in volatile markets and avoids the pitfalls of timing entry into markets​.

But you must enter into an arrangement with your employer before income is earned, so unexpected bonuses cannot be tipped into super, and you don’t know when your employer will contribute, making it difficult to target the cap.

Contributing personally gives you control and flexibility with timing, the amount and dealing with the cap at year end​.

There’s peace of mind knowing your money gets to your fund as many employers leave it for months between deducting money from wages and contributing – for some, it never gets there!​

It avoids a nightmare should your employer go into administration/receivership, as money deducted from salary but not contributed take years to recover.

But it may mean ending up with an ENCC determination​.