Neale Prior [email protected] For all your latest ...€¦ · Financial planners are...
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For a limited time. Conditions apply, available at sgio.com.au/bb10. Applies to current, genuine competitor quotes or renewals on comparable car insurance. Written proof may be required. Cannot be used with any other offer. To see if our car insurance is right for you, always read the Product Disclosure Statement from the product issuer, SGIO. sgio.com.au 133 233 local office IAG10302_TWA Quality insurance. Unbeatable price. If you fi nd a lower price on car insurance, we’ll beat it by 10% Financial planners are warning that people putting extra money into their superannuation should check that they are not about to fall foul of Federal Government- imposed contribution caps. As we head into the last quarter of the financial year, there may still be time to modify contribution arrangements to reduce the risk of getting ensnared by tough rules imposing tax of 46.5 per cent — and possibly as much as 93 per cent — on so-called excess superannuation contributions. The tax is charged on what are known as both concessional and non-concessional contributions that are above limits set by the Federal Government. Concessional contributions involve money on which tax has not been paid, including payments under the 9 per cent compulsory superannuation schemes and sal- ary sacrifice payments. Tax has generally been paid on non-concessional contributions. Momentum Planning director Pippa Elliott said many people were inadvertently falling foul of the various caps, often through miscalculating their non-conces- sional contributions or making non-concessional contributions to separate superannuation funds. Ms Elliott, a financial planner, said people with multiple employers and a range of salary sacrifice arrangements were also vulnerable to breaching the conces- sional cap, as were people who made additional payments to cover insurance arrangement sitting inside fund, who then forgot that those payments were a super- annuation contribution. “There can be an opportunity to fix inadvertent errors before the end of the financial year,” she said. A timely check in the lead-up to the end of the financial year would maximise chances of avoiding or reducing problems, such as cutting the amount being salary sacrificed or making contributions non-con- cessional (after tax), she said. Peter Burgess, the technical director of the Self Managed Super- annuation Funds Professionals’ Association, said there were very few things that could be done to fix problems once excess contribu- tions had been made. “There wouldn’t be a week go by where we don’t have someone call- ing us about their unfortunate experience with excess contribu- tions tax,” Mr Burgess said. After an outcry from the super- annuation industry, the Federal Government relented in last year’s Budget and allowed people who exceed their concessional contri- bution cap by less than $10,000 in 2011-12 and beyond to request the superannuation fund to pay back the excess amount. It is a highly conditional con- cession, including not being avail- able to people who had made excess contributions in past years. The Federal Government has col- lected more than $400 million in tax on excess superannuation contri- butions from 2006 to 2010 alone. Flinders Financial Services director John Deakin said he had to constantly check clients’ super- annuation contributions to make sure they did not trip over contribution limits and get hit with big extra tax bills. Concessional contributions that exceed the $25,000 or $50,000 annual limit become non-concessional contributions and are added on to any non-concessional contribu- tions made to a fund. A person who had made $450,000 in non-conces- sional contributions and then made excessive concessional con- tributions could end up paying an effective tax rate of 93 per cent on the extra amount. For example, someone over 50 who had made $450,000 in non-con- cessional contributions and then blew their concessional cap by $20,000 by making $70,000 of pre-tax concessional contributions could have to pay 93 per cent tax on the $20,000 excess. Accountant and superannuation fund auditor Kenneth Turner said high income earners who had multiple employers could not help but get caught by the excess conces- sional contributions limit because each employer had to pay the 9 per cent superannuation guarantee payment. For each employer a person works for, the 9 per cent compulsory superannuation is cal- culated on income of up to $175,280. Mr Turner said the saddest sto- ries involved people getting caught with excessive non-concessional superannuation contributions that went beyond the $450,000 limit. People could ask to get back excess contributions, but the tax office applied the provisions in such a tough way that often it was impos- sible to reverse the contribution. The tax office looked at each con- tribution on its own when deciding whether an excess contribution could be refunded, meaning that someone who fell foul of the laws by contributing $100,000 on top of their base contribution of $450,000 would be unlikely to get a reversal. “You are getting all these problems and they’re by silly errors because peo- ple are human,” Mr Turner said. “It is not just rich people getting caught.” Mr Burgess said the tax was excessive and there needed to be a mechanism that allowed people to withdraw excess contributions. A penalty could be imposed that was less harsh than the current system while still having a deterrent effect. “Under the current regime the penalty does not fit the crime,” he said. Be wary of excessive super tax PUNITIVE PENALTIES ■ Neale Prior Personal Finance Editor NEST-EGG NASTIES WHAT YOU NEED TO KNOW CONCESSIONAL CONTRIBUTIONS People aged less than 50 can make a total of $25,000 in compulsory superannuation and salary sacrifice contributions each year before they start getting slugged 46.5% tax. Those over 50 can put in up to $50,000 a year before they start getting hit. The 46.5 % tax comprises a 31.5 % extra tax hit on top of the standard 15 % concessional tax imposed on pre-tax superannuation contributions. NON-CONCESSIONAL CONTRIBUTIONS Include money put into superannuation from after-tax income, including spouse contributions and some transfers from overseas superannuation funds. Concessional contributions in excess of the annual limits are counted as non-concessional contributions. $150,000-a-year of non-concessional contributions are allowed before a person faces a tax of 46.5 % on excess payments. In some cases, people can make $450,000 in non-concessional contributions in one year and then not make further non- concessional contributions for two years. TOUGH JUSTICE Someone who has breached both the $450,000 limit and the $25,000 or $50,000 annual contribution limit could effectively be paying double penalties of up to 93% on excess amounts. Monday, March 26, 2012 YOUR MONEY Edited by Neale Prior [email protected] For all your latest business news, go to thewest.com.au/business 33
Transcript of Neale Prior [email protected] For all your latest ...€¦ · Financial planners are...
For a limited time. Conditions apply, available at sgio.com.au/bb10. Applies to current, genuine competitor quotes or renewals on comparable car insurance. Written proof may be required. Cannot be used with any other offer. To see if our car insurance is right for you, always read the Product Disclosure Statement from the product issuer, SGIO.
sgio.com.au133 233 local offi ce
IAG10302_TWA
Quality insurance. Unbeatable price.If you fi nd a lower price on car insurance, we’ll beat it by 10%
Financial planners are warningthat people putting extra moneyinto their superannuation shouldcheck that they are not about to fallfoul of Federal Government-imposed contribution caps.
As we head into the last quarterof the financial year, there may stillbe time to modify contributionarrangements to reduce the risk ofgetting ensnared by tough rulesimposing tax of 46.5 per cent — andpossibly as much as 93 per cent —on so-called excess superannuationcontributions.
The tax is charged on what areknown as both concessional andnon-concessional contributionsthat are above limits set by the Federal Government.
Concessional contributionsinvolve money on which tax has notbeen paid, including paymentsunder the 9 per cent compulsory superannuation schemes and sal-ary sacrifice payments.
Tax has generally been paid onnon-concessional contributions.
Momentum Planning directorPippa Elliott said many peoplewere inadvertently falling foul ofthe various caps, often throughmiscalculating their non-conces-sional contributions or makingnon-concessional contributions toseparate superannuation funds.
Ms Elliott, a financial planner,said people with multipleemployers and a range of salarysacrifice arrangements were alsovulnerable to breaching the conces-sional cap, as were people whomade additional payments to coverinsurance arrangement sittinginside fund, who then forgot thatthose payments were a super-annuation contribution. “Therecan be an opportunity to fix inadvertent errors before the end ofthe financial year,” she said.
A timely check in the lead-up tothe end of the financial year wouldmaximise chances of avoiding orreducing problems, such as cuttingthe amount being salary sacrificedor making contributions non-con-cessional (after tax), she said.
Peter Burgess, the technicaldirector of the Self Managed Super-annuation Funds Professionals’Association, said there were very
few things that could be done to fixproblems once excess contribu-tions had been made.
“There wouldn’t be a week go bywhere we don’t have someone call-ing us about their unfortunate experience with excess contribu-tions tax,” Mr Burgess said.
After an outcry from the super-annuation industry, the Federal
Government relented in last year’sBudget and allowed people whoexceed their concessional contri-bution cap by less than $10,000 in2011-12 and beyond to request thesuperannuation fund to pay backthe excess amount.
It is a highly conditional con-cession, including not being avail-able to people who had made
excess contributions in past years.The Federal Government has col-
lected more than $400 million in taxon excess superannuation contri-butions from 2006 to 2010 alone.
Flinders Financial Servicesdirector John Deakin said he had to constantly check clients’ super-annuation contributions to makesure they did not trip over
contribution limits and get hit withbig extra tax bills.
Concessional contributions thatexceed the $25,000 or $50,000 annuallimit become non-concessionalcontributions and are added on toany non-concessional contribu-tions made to a fund. A person whohad made $450,000 in non-conces-sional contributions and thenmade excessive concessional con-tributions could end up paying aneffective tax rate of 93 per cent onthe extra amount.
For example, someone over 50who had made $450,000 in non-con-cessional contributions and thenblew their concessional cap by$20,000 by making $70,000 of pre-taxconcessional contributions couldhave to pay 93 per cent tax on the$20,000 excess.
Accountant and superannuationfund auditor Kenneth Turner saidhigh income earners who had multiple employers could not helpbut get caught by the excess conces-sional contributions limit becauseeach employer had to pay the 9 percent superannuation guaranteepayment. For each employer a person works for, the 9 per centcompulsory superannuation is cal-culated on income of up to $175,280.
Mr Turner said the saddest sto-ries involved people getting caughtwith excessive non-concessionalsuperannuation contributions thatwent beyond the $450,000 limit. People could ask to get back excesscontributions, but the tax officeapplied the provisions in such atough way that often it was impos-sible to reverse the contribution.
The tax office looked at each con-tribution on its own when decidingwhether an excess contributioncould be refunded, meaning thatsomeone who fell foul of the laws bycontributing $100,000 on top of theirbase contribution of $450,000 wouldbe unlikely to get a reversal. “Youare getting all these problems andthey’re by silly errors because peo-ple are human,” Mr Turner said.“It is not just rich people gettingcaught.”
Mr Burgess said the tax wasexcessive and there needed to be amechanism that allowed people towithdraw excess contributions. Apenalty could be imposed that wasless harsh than the current systemwhile still having a deterrent effect.
“Under the current regime thepenalty does not fit the crime,” he said.
Be wary of excessive super tax PUNITIVE PENALTIES
■ Neale PriorPersonal Finance Editor
NEST-EGG NASTIES WHAT YOU NEED TO KNOWCONCESSIONAL CONTRIBUTIONS� People aged less than 50 can
make a total of $25,000 in compulsory superannuation and salary sacrifi ce contributions each year before they start getting slugged 46.5% tax.
� Those over 50 can put in up to $50,000 a year before they start getting hit.
� The 46.5 % tax comprises a 31.5 % extra tax hit on top of the standard 15 % concessional tax imposed on pre-tax superannuation contributions.
NON-CONCESSIONAL CONTRIBUTIONS� Include money put into
superannuation from after-tax income, including spouse contributions and some transfers from overseas superannuation funds.
� Concessional contributions in excess of the annual limits are counted as non-concessional contributions.
� $150,000-a-year of non-concessional contributions are allowed before a person faces a tax of 46.5 % on excess payments.
� In some cases, people can make $450,000 in non-concessional contributions in one year and then not make further non-concessional contributions for two years.
TOUGH JUSTICE� Someone who has breached
both the $450,000 limit and the $25,000 or $50,000 annual contribution limit could eff ectively be paying double penalties of up to 93% on excess amounts.
Monday, March 26, 2012
YOUR MONEYEdited by Neale Prior [email protected]
For all your latest business news,go to thewest.com.au/business
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