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Excess Super Contributions

Excess superannuation contributions tax – unfair government revenue raising

John Hewison
Founder and Director
16 Sep 2010

The excess superannuation contributions tax penalty is a savage and unjust impost levied on Australian taxpayers who are doing no more than trying to maximise their retirement savings. The notion that around 35,000 Australians “deliberately” made excessive contributions to their superannuation funds in 2009 is absurd. Clearly, due to the complexity of the superannuation contributions caps regime, it is very easy to make a mistake and inadvertently make a contribution that exceeds the regulated caps. But rather than simply disallowing the contribution and returning any excess to the member, the Australian Tax Office (ATO) applies penalties from 46.5% to as high as 93%!

Taxpayers do receive a taxation benefit for concessional contributions for which they effectively receive an income tax deduction and pay a 15% contributions tax. The annual maximum deductible amount for these contributions is $25,000 per annum or $50,000 per annum for those over 55 years of age. For those who choose to make non-concessional contributions where they contribute tax paid funds to superannuation, no tax benefit is gained. Non-concessional contributions of either $150,000 per annum or an average of $450,000 over any three year period may be made.

Let’s look at a case study –                                            

Marcia is a 60 year old executive and earns a salary of $150,000 per annum. She decided to sacrifice $50,000 of her salary to superannuation and transfer personal  investment assets of $450,000 to her super fund as a non-concessional contribution. Marcia overlooked the fact that her employer contributed $13,500 in DSGC contributions on her behalf so that she had unintentionally (and innocently) exceeded her contribution cap by this amount. As a result $31,500 of Marcia’s concessional contribution would have been disallowed and would have been deemed to be an excessive non-concessional contribution and thus taxable at 46.5% on top of the 37% personal income tax she would have been liable to pay – that is a total tax impost of 83.5%.

Where an excess contribution is mistakenly made, there is a period of 30 days for the error to be discovered and the excessive contribution to be rejected and returned to the member with no penalty.  Of course the problem is that it is often 9 months after the year end that the fund returns are prepared and any excess contributions are discovered.

 Why should a taxpayer be penalised so harshly for simply making a miscalculation or an unintentional mistake under a superannuation system that is riddled with complexity and subject to constant government imposed rule changes? These are not issues of making unjustified tax claims or deliberate taxation avoidance. How does the government justify the imposition of a 46.5% tax penalty on money upon which the worker has already paid the full rate of income tax?

This is the most blatant government revenue grab totally devoid of any semblance of fairness; and yet, the government refuses to take action. Why – because it needs the money!

With the massive issue of an ageing population looming fast, the government needs to encourage Australian taxpayers to save for their retirement and the imposition of harsh penalties like this doesn’t help. The fair solution would be for superannuation funds to simply return any excess contributions to the member and for any income tax deduction on the excess amount to be denied.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.