By now, most are aware that if you contribute too much into super in a financial year, then you might pay penalty tax.
To recap, the current maximum concessional contributions cap for this year is $35,000, if you were aged at least 49 on 30 June 2014 or $30,000 for everyone else.
The maximum non-concessional contribution (NCS) you can make in a financial year is $180,000.
If you’re aged under 65 at the start of a financial year, you can contribute three times this amount in one financial year, that is $540,000, but this restricts what you can contribute in the future years.
We’re all busy and it’s easy to forget what super contributions you have made throughout the year. In fact, most excess contributions problems arise either because people don’t know the rules or they forget what contributions they’ve already made. Here are 6 ways to avoid falling foul of the caps
1. Check the transactions in your fund’s bank account
If you run an SMSF, check your fund’s bank account to identify super contributions made during a financial year.
2. Check with your super funds
Check with every super fund you belong to about what contributions they have recorded against your name for this financial year. Ask them to detail the type of contribution and get any data record errors corrected.
If you’re trying to use the $540,000 bring forward rule, then ask for your contribution history for this year and the two previous financial years.
3. Check with your employer
Ask your employer to detail when it has made super contributions for you and to which super fund. Sometimes employers inadvertently make contributions to the wrong super fund.
Ask them to tell you when they expect to make other contributions before the end of the financial year, together with the dollar value and likely transaction date. This is especially important for salary sacrifice contribution arrangements.
If you belong to a defined benefit super fund, ask your employer what its “notional employer contribution” is for this year. This is a contribution number worked out by an actuary.
4. Check with the Tax Office
Ask the Tax Office what contribution information it has in its data record. If you have made personal super contributions, then you need to ask the ATO to check, not only their super fund contribution history data but also the data they hold against you personally. The main reason for checking both systems is that sometimes there can be timing differences between when you submit your personal tax return and when your super fund submits its contribution information.
5. Timing is important
Remember that if you want to access the contribution caps this year, then some contributions can take a bit of time to organise, especially if you’re trying to finalise a transaction over a weekend. For example, B-Pay and direct debit transactions typically aren’t processed on non-working days. Also off market transfers of shares can sometimes take a few days to be registered.
6. Build a table of contribution caps less contributions already made
The final point is to jot down the contribution cap you’re trying to use this financial year and then reduce that amount by the information you have gathered above. Ultimately, you’ll end up with a contribution amount that you can still contribute this financial year so you don’t accidentally incur excess contribution penalty tax.
And what happens if you do inadvertently exceed the caps?
For concessional contributions you have two choices:
- Leave the contributions in the super system and have them taxed at your marginal tax rate; or
- Elect to have the contributions removed from the super system and have these contributions, plus a notional amount of earnings, taxed at your marginal tax rate. You might also have to pay a fine because you’re deemed to have paid your income tax late.
For non-concessional contribution cap:
- You can leave the contributions in the fund and have them taxed at the highest marginal tax rate; or
- Elect to have the contributions removed from the super system. If you select this option, the ATO works out a notional amount of earnings and has those contributions taxed at your marginal rate.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
