Last year approximately 40,000 people contributed too much to their superannuation, with these excess contributions attracting up to 46.5% tax. While the Government encourages us to top up our super by offering a favourable tax environment for super contributions and earnings, it also sets a limit on the amount of contributions that can be made to your super. So it appears that too much of a good thing can be bad for you.
Don’t get caught out by contributing too much to super – you might lose more than you gain. Here are some ways to optimise your contributions.
Concessional Contributions
• Which include the 9% super guarantee, salary sacrificed amounts, other employer contributions
• Contributions over the limit attract a 31.5% penalty tax in addition to the 15% tax rate that applies to all concessional contributions
• By going over the limit you miss out on most of the tax benefits of making those contributions in the first place
• All these concessional contributions combined resulted in considerable excess contributions
• ‘Set and forget’ mentality – where you set up salary sacrifice arrangements and leave them in place for years – can also be dangerous
• The Australian Taxation Office (ATO) checked 2008–09 financial year information and wrote to around 300,000 people warning them
It also pays to be aware that any excess concessional contributions are counted towards your non-concessional cap.
• It’s not unknown for people to exceed both the concessional and non-concessional caps
• Could result in an effective 93% total tax on the contribution
• There is scope to appeal to the ATO if you exceed your contribution caps, although it’s a challenging process to go through
Contribution caps for 2010 – 2011
| Under 50 | 50 and over | |
|---|---|---|
| Concessional Contributions (before tax) | $25,000 | $50,000 until 30 June 2012 |
| Non-Concessional Contributions (after tax) | $450,000 over a 3 year period when using the ‘bring forward’* rule | $150,000 per annum |
* – People under age 65 at any time in a financial year may effectively bring forward two years’ worth of entitlements of non-concessional contributions for that income year, allowing them to contribute a greater amount without exceeding their non-concessional cap.
Avoid the traps
It is common to have a personal super fund and a work super fund, so it’s important to check the contributions for all funds. You may like to consider consolidating your super funds to make it easier to keep track of all your contributions.
Depending on your age and the type of contribution you are making, different limits apply.
Any contribution made to a super fund before tax counts as a concessional contribution. This includes the super guarantee payments made by your employer and any salary sacrifice contributions you have made.
If your salary sacrifice contribution was noted on your June payslip, it may not have actually gone into your super fund until July. Call your super fund to check.