The above case indicates the problems that can be created for taxpayers in relation to superannuation contributions. This can occur without the taxpayer’s involvement. For example an employer may pay the contributions for the taxpayer for one year in another year.
The Government has announced proposed reforms but they are very limited and do not deal with the problem that has arisen in practice.
Under these reforms a refund option will be offered to an individual who has excess concessional contributions of $10,000 (not indexed) or less in a particular year and only for the first year in which the concessional contributions cap is breached, commencing from 2011-12. Under this refund option, the excess concessional contribution will be treated as assessable income for the individual in the financial year the contribution was made which will mean that individuals will effectively pay tax at their marginal tax rate(s) (a tax offset of 15% will be applied for tax already paid on these contributions), rather than the potentially higher effective tax rate that would have been incurred under the excess contributions tax regime.