Super Contribution Penalties Reviewed

  • May 18, 2011
  • Tax

Super Contribution Penalties reviewedAccording to the Australian Tax Office more than 65,000 tax payers have been identified to have breached the self managed superannuation fund contribution caps for the 2010 financial year and it is expected that more will be caught. Figures from last year indicate that there were 28,000 breaches. This increase indicates that many Australians are unaware of how to avoid breaching the caps.

The 2011 Federal Budget has prescribed some relief for minor breaches of the concessional contribution limit currently standing at $25,000.

From 1 July 2011, members who breach the cap by up to $10,000 can request that the excess contributions be refunded to them without further implications. This is however, a once only offer and subsequent breaches will not qualify for a refund.

Ouch!

An incentive for members to know and understand their limits on contributions are the tax rates applied to concessional and non concessional contributions that exceed the capped amounts that can be between 46.5% and 93%!!! This does not include the additional fines and penalties that the Australian Taxation Office impose.

Some common mistakes that lead to the breaching of caps include not counting contribution expenses paid by employers on behalf of the self managed fund towards the cap. The most common of these breaches include expenses paid by an employer to the fund for administration fees and insurance.

Similarly, the Australian Taxation Office stipulates that where members use their personal funds to pay an expense on behalf of the fund, the payment must be allocated to a member of the fund. This in turn, counts towards that members contribution cap limit.

Another common error in the in-specie transfer of property from a member into their self managed superannuation fund. This transfer is considered to be a contribution by the member and counts towards the non concessional contribution limits.

Remember that the current caps for Concessional Contributions are $25,000 per annum or $50,000 per annum until 30 June 2010 if members are already 50 years of age.

Concessional Contributions include:

  • employer contributions for superannuation guarantee purposes, ie. the 9%;
  • salary sacrifice contributions made by an employer in  respect of an employee from before-tax income;
  • personal super contributions made by a self-employed person.

Some tax saving strategies

that can assist members in avoiding breaching the caps while still maximises the tax benefits include:

  • Splitting your contributions with your spouse
  • Making the most of your non concessional contribution caps- the non concessional cap currently stands at $150,000 or $450,000 over three years. Making non concessional contributions allows you to still benefit from the tax savings of a self managed superannuation fund.
  • Transition to retirement pensions- Members of self managed funds who are over 55 and still working can draw down a transition to retirement pension or TRIS all the while still making salary sacrificed contribution to the fund.
  • Taking advantage of negative gearing within your superannuation fund- Members can kick start their superannuation savings in the fund through negatively gearing investments.