Superannuation Contributions - Avoiding Penalty Tax

by Ian Morella, Director of Accounting

Making superannuation contributions seems straightforward enough, however all tax payers need to be aware that exceeding their contributions caps set by the Australia Taxation Office (ATO) does come with penalties.

We were recently contacted by a client who had received a notice from the ATO advising she would have to pay additional tax as a result of exceeded her concessional superannuation caps in the last financial year.

In light of this recent communication, and to ensure our clients are not putting themselves in a similar situation, I have listed some information and tips to ensure you’re complying with the ATO’s regulations.

What are the penalties for exceeding superannuation contributions?

You will need to pay tax on the excess contributions made.

The additional tax payable is between a minimum of 31.5% and a maximum of 46.5%.

Tips to keep below the Concessional Contributions Cap

Below are some tips the ATO has provided to help taxpayers keep their superannuation contributions below the concessional contributions cap, to avoid paying extra tax.

  • If a taxpayer works out they may exceed the concessional contributions cap in the current financial year, they should consider:
  • Stopping or reducing any voluntary contributions, such as salary sacrifice (they cannot ask their employer to change compulsory superannuation guarantee amounts or amounts paid under a contract or industrial agreement); and/or
  • Delaying making any personal superannuation contributions they intend to claim as a deduction to the next year;
  • Check when their contributions are received by their superannuation fund (generally, the contribution counts towards a cap in the year in which the superannuation fund actually receives the money).
  • Check if the employer pays costs such as superannuation administration fees and insurance premiums on behalf of the fund, as they can count towards the taxpayer’s concessional contributions cap.
  • If the taxpayer has more than one job or pays money into more than one superannuation fund, they should include all these when they work out their annual contributions (remembering that compulsory superannuation guarantee amounts are concessional contributions).
  • If the taxpayer is eligible to claim a deduction for their personal superannuation contributions, only the amount allowed as a deduction will count towards their concessional contributions cap.

Tips to keep below the Non-Concessional Contributions Cap

Below are some tips to help taxpayers from going over the non-concessional contributions cap, so they do not pay extra tax.

  • If the taxpayer exceeds the concessional contributions cap, the excess contributions count towards their non-concessional contributions cap.
  • Any amount that is cashed out and re-contributed into the taxpayer’s superannuation fund is a personal contribution.
  • Contributions are counted against the caps in the year in which they are received and credited by the superannuation fund.
  • A taxpayer is only eligible to bring forward the next two years of contributions if they are 64 years old or less on 1 July of the first financial year.
  • If the taxpayer is over 65 years old, then they must pass the work test to make contributions (i.e. they must work for at least 40 hours over a 30 day period in the year in which the contribution is made).
  • The taxpayer must give an election form to their fund before or when they make a contribution if they are eligible to exclude from the non-concessional cap:
  • contributions arising from personal injury payments; or
  • contributions derived from the proceeds of the disposal of certain small business assets, up to their lifetime superannuation CGT cap amount.
  • If the form is submitted to the fund after the contributions are made, the exclusion will not apply and the fund must report the amount to the ATO as a personal contribution.


It’s important you are fully aware of your concessional and non-concessional cap limits in your superannuation, in order to avoid paying any additional penalty tax.

For information or advice regarding your own superannuation or cap requirements, please contact our Client Liaison Office on 1300 726 082 to book an appointment with a John Hopkins Taxation Accountant.


Note: Some information from this communication was sourced from the National Tax and Accountants website at: www.ntaa.com.au
   

   To arrange an appointment with a John Hopkins Taxation Accountant or Financial Adviser, please contact our Client Liaison Officer on 1300 726 082 or click here.




  

More Education and Research