Robin Bowerman, Head of Retail at Vanguard Investments Australia.
Robin Bowerman, Head of Retail at Vanguard Investments Australia.

Super's tax sting

DID you realise that some unfortunate super fund members face a 93 per cent tax rate on certain superannuation contributions?

This breathtaking rate is triggered when fund members exceed the annual caps on both concessional and non-concessional contributions.

Contributions that exceed the cap on concessional contributions count towards the cap on non-concessional contributions – and could push a member’s non-concessional contributions over the limit.

Here’s how that hefty tax figure is calculated:

  • Contributions that overshoot the concessional cap are taxed at 31.5 percent, in addition to the 15 percent standard contributions tax – bringing the tax take, so far, to 46.5 percent.
  • Contributions that overshoot the non-concessional cap are taxed at 46.5 percent, bringing the possible tax total to 93 percent.

Excess contributions are, of course, highly topical at this time with many taxpayers now completing their 2009-10 tax returns, the Government’s halving of the cap on concessional contributions from 2009-10, and with the tax office’s recent updating of its online information regarding excess contributions.

The tax office can, in “special circumstances”, disregard excess contributions or reallocate them to another financial year. But the ATO warns: “It isn’t enough that your circumstances were unusual for you.”

And the ATO explains that unintentionally exceeding the caps, misunderstanding the law or facts, or being given incorrect information does not “amount to special circumstances on their own”.

Particularly as the amounts involved in excess contributions tax are potentially so large, any members who have overshot their caps might well consider gaining specialist professional advice.

Read more about the ATO’s approach to “special circumstances”.

Robin Bowerman, Vanguard Investments Australia's Head of Retail, has more than two decades of experience in the finance industry as a writer, commentator and editor.

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