No 3: Excess contributions tax

In the 2009 Federal Budget, it was announced that the maximum concessional contribution able to be made to a complying superannuation fund for the 2009/10 financial year would be halved to $25,000 (and a transitional amount of $50,000 for those taxpayers over the age of 50). This has focused attention on contributions which may inadvertently result in a breach of this cap. If this occurs, excess contributions will incur additional “excess contributions tax” at the rate of 46.5%.

Following the introduction of limited superannuation contribution caps from 1 July 2009 many taxpayers are inadvertently incurring excess contributions tax which in certain circumstances can be as high as 93%. For many clients, we do not have sufficient information to know in advance whether this tax will be incurred. This tax can often be avoided with a bit of planning.

Examples of where excess contributions tax can inadvertently be incurred

  • Salary sacrifice arrangements are not reviewed and updated.
  • If you are likely to receive a bonus or pay rise and you have already exceeded your contributions cap.
  • If it is the employer’s normal practice to remit contributions after the end of the quarter and by the due date being 28 days after the end of the quarter, such contributions may count towards the 2009/10 financial year caps and not, as one might expect, the 2008/09 financial cap.
  • Under changes to the Superannuation Guarantee Regulations which took effect from 1 July 2009, certain payments to employees which may not have been previously subject to the SG may now fall under the definition of Ordinary Time Earnings (“OTE”) by which the SG payment is calculated.
  • You simply forget about earlier contributions made.
  • You misjudge the eligibility under the 10% rule for deductibility of personal contributions.
  • As a member of a self managed superannuation fund you pay for expenses which relate to the superannuation fund and you have already exceeded your contribution limit.

We have tools to assist in the monitoring of this problem and have strategies to help reduce the inadvertent imposition of excess contributions tax. If you would like us to undertake a review to minimise your exposure to this tax, or if you think you may be at risk and want to discuss strategies to minimise your exposure, please do not hesitate to contact your Blaze Acumen adviser.