The 31.5% penalty tax applying to excess concessional super contributions has (finally) been scrapped.

The old scheme was unfair in that excess contributions were taxed at 46.5% (including the 15% contributions tax that ordinarily applies to concessional contributions) which is equivalent to the highest marginal rate. Furthermore, the excess contribution amount was assessed under the non-concessional cap so if the contributing member had also taken full advantage of this cap, a further 46.5% tax penalty applied. This meant excess contributions could be taxed as high as 93%!

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There were no further changes to superannuation announced in the recent Federal Budget, but the Government has wasted no time in moving on its previously announced proposal to increase the concessional contribution cap from 1 July 2013.

On 5 April, Minister Shorten announced a $10,000 increase to the annual $25,000 cap and Treasury have already released an exposure draft for industry consultation.

The increase will be phased in over two years with individuals aged 59 or older becoming eligible on 1 July this year, and those aged 49 or above becoming eligible from 1 July 2014. For everyone else, the $25,000 annual cap will remain and indexation will be frozen until the 2014/15 financial year, then the cap will be indexed annually until it reaches $35,000.

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