Concessional super contribution limits (contributions where the employer or member receives a tax deduction) are imposed and administered by the Australian Taxation Office (ATO). Each year until June 2012, people over the age of 50 will be allowed to make concessional contributions of up to $50,000 in the form of employer contributions (SG), salary sacrifice and deductible contributions. For people aged less than 50 the annual concessional limit is $25,000. After June 2012, the annual concessional cap will be restricted to $25,000 for everyone irrespective of their age.
The super savings vehicle is one of the few which offers contributors tax concessions on entry, tax concessions whilst in accumulation or pension phase and tax concessions on withdrawal of funds, usually on retirement. On entry via salary sacrifice, investors are able to substitute their marginal tax rate (MTR), which may be up to 46.5% depending on their level of income, with the contributions tax rate of 15%, thereby saving up to 31.5% in taxation costs. Whilst held and invested in super, fund earnings are taxed at a maximum of 15% and capital gains at a maximum of 10%, rather than being taxed in the hands of the individual investor at their MTR. When moved into pension phase the fund earnings are completely tax exempt, so pension fund members typically gain more their fellow members in the accumulation phase. On release from the super fund, usually on retirement after age 60, withdrawals are tax exempt, whether received in the form of an allocated pension or in a lump sum. No other investment structure is given such generous tax concessions. To balance savings incentives with the required tax revenue, the Government imposes strict annual concessional contribution limits as mentioned above.
If you exceed the annual concessional caps, the excess is taxed in total at the top tax rate of 46.5% and the excess also counts towards the non-concessional or after-tax annual cap. People taking advantage of the tax benefits of salary sacrifice to boost their super savings, whether alone or in a transition to retirement arrangement, need to take care as the ATO are strict enforcers of the caps. People who have exceeded the annual caps for the 2008/09 financial year are now starting to feel the pain with the ATO notifying them with an excess contributions tax assessment.
As the cap applies to contributions made to all super funds, the individual must take ultimate responsibility for knowing the rules. Pleading ignorance of the cap will usually not qualify for any mitigation of the penalty. That being said, the Commissioner for Taxation does have the power to disregard contributions or allocate them to another financial year, especially if the contributor concerned can prove that the situation was beyond their control.
An example of this may occur where a past employer failed to make super contributions for a member and years later the ATO has forced the errant employer to make a large SG back-payment for super owed from previous time periods. This back-payment, combined with the current year’s concessional contributions, may exceed the cap for the current year and a liability for excess contributions tax may be raised and an ATO notification received by the super fund member.
In a situation such as this, it is important for the member to appeal to the Commissioner for Taxation within 60 days of receiving the notification or being made aware of the excess contributions tax that may be due. As the super back-payment related to a past period or to perhaps many years and the member could neither foresee nor control this situation, the ATO, on appeal from the member, may decide to allocate the back-payment to the previous applicable financial periods.
The ATO has the ability to exercise this discretion and it is worth the member’s effort to convince them to do so. After all, the wrong doing was on the part of the old employer who failed in his duty to the employee, so it would be an injustice for the employee to pay the penalty.
Disclaimer: This superannuation article is for general information only. It does not take into account your personal objectives, financial situation or needs. As a result, you should consider its appropriateness to your own situation and obtain independent financial advice before making any decisions about your superannuation.
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