Super contributions – too much of a good thing?

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

•    Most common mistake that members make is not being aware of exactly what contributions count towards the cap or forgetting about the caps completely
•    A fund member on a substantial salary – the contributions comprised the 9% superannuation guarantee, salary sacrifice contributions and additional contributions made on their behalf by their employer to cover insurance premiums

•    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

Check contributions made to all of your super funds

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.

Different ages for different contributions

Depending on your age and the type of contribution you are making, different limits apply.

Don’t forget super guarantee contributions

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.

Take note of the date of contributions

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. 

Make sure the paperwork is right
If you make a personal deductible contribution to your super, make sure you include your deduction in your tax return, and that the figure you include matches the figure in the deduction notice submitted to your super fund
“The information is general in nature only. It does not take into account your objectives, financial situation or needs so you should consult a professional adviser, who will consider your particular financial position and requirements before making a recommendation.”

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