No one wants to pay more tax than required, especially when it is due to inadvertent mistakes that could have easily been avoided. This can occur when it comes to making super contributions that exceed contribution caps.
The ATO takes a hard line on excess contributions – whether they are concessional (pre-tax) or non-concessional (after-tax) – so it is best to stay vigilant and take note of what contributions you make.
Excess contributions tax of up to 46.5% can apply where the caps are exceeded.
The table below summarises the caps for 2012-13 and 2013-14 and applicable tax rates.
Following is a guide to guard against some common mistakes made with regard to both contributions.
Individuals who make concessional contributions need to adhere to the following rules to avoid exceeding their cap:
• always monitor voluntary contributions (eg. salary sacrificing) so you can stop, reduce or delay them when you realise you may exceed your concessional contributions cap in a certain financial year (Note: employees cannot ask their employer to change compulsory super guarantee amounts)
• remember that your employer’s super guarantee contributions are included under concessional contributions
• always check when super guarantee contributions are received by your fund. eg. contributions for the June 2013 quarter may be received by your fund in July 2013, making it a concessional contribution for 2013-14)
• combine contributions from all employers, where there is more than one
• remember that the transitional concessional contributions cap for over 50s ($50,000 in 2011-12) ended on June 30, 2012
• always take into account deductible super insurance premiums and administration costs being paid by your employer because they both count towards the concessional contributions cap
• remember that splittable contributions under a super contributions splitting arrangement count towards the concessional contributions cap of the “applicant spouse” (who received the original contributions), not the “recipient spouse”
• always complete and lodge a “notice of intent to claim or vary a deduction for personal super contributions” and supply it to your fund (even if it’s a self-managed super fund) before you start an income stream or pension if those concessional contributions form part of the pension assets.
Similarly, individuals who make non-concessional contributions need to be wary of the following:
• remember that excess concessional contributions count towards your non-concessional contributions cap
• take stock of when the “bring forward” option has been triggered in a prior year (Note: under the “bring forward” option, people under 65 may be able to make non-concessional contributions of up to three times their non-concessional cap over a three year period. For instance, if you brought forward your contributions in the 2012-13 income year, it would be 3 x $150,000 = $450,000)
• do not make non-concessional contributions greater than $150,000 when you are ineligible to use the “bring forward option”
• do not undertake a “re-contributions strategy” without realising that the re-contributed amount counts towards your non-concessional contributions cap (Note: a “re-contribution strategy” involves withdrawing a lump sum, paying any necessary tax on the withdrawal and re-contributing these funds into your superannuation as a non-concessional contribution)
• always lodge the appropriate election form before or when you make the following contributions so they can be excluded from your non-concessional contributions cap:
a. contributions arising from personal injury payments, and
b. contributions derived from the proceeds of the disposal of certain small business assets, up to their lifetime capital gains tax amount.
Several options exist to manage a potential excess contributions tax problem, but it’s best to prevent excess contributions in the first place by following the pointers above. Before each contribution is made, do confirm that no contributions cap will be accidentally exceeded.