Heard the one about superannuation contribution caps?
Over 65,000 Australians have heard about it and to the tune of $400 million in excess contributions tax.
On the face of it, the contributions caps appear straight-forward and understandable.
The concessional contributions cap currently stands at $25,000 for those under 50 on 30 June 2012; or $50,000 for those over 50 on 30 June 2012.
The non-concessional contributions cap stands at $150,000 ($450,000 over a three year period) for anyone under 65 during 2011-2012; or $150,000 for anyone over 65 for all of 2011-12.
Unfortunately, due to the complexity of the rules regarding excess super contributions – I couldn’t even list them all in this week’s and next week’s articles – they’re easy to fall prey to.
And it appears the problem will only get worse.
From July 1 2012, the concessional contribution cap changes to $25,000 for everyone, except those over 50 with super balances less than $500,000.
There is some respite coming if the excess contribution are below $10,000, here individuals have the excess amount refunded and pay tax on it at their marginal rate.
This is certainly preferable to the alternative, where excess contributions are taxed at 46.5%.
However, go above $10,000 and the penalty is automatic.
To get the self-interest out of the way, this is where professional advice comes in handy because the consequences of a mistake are costly.
Yet should these rules be so complicated and arbitrary that the government ends up creaming $400 million out of peoples’ retirement savings?
Many believe excess contributions have become a handy revenue raiser when a government is looking to return to surplus.
As one commentator noted, the people who implement these ideas are exempt from the tax themselves because it doesn’t apply to their defined benefit public sector superannuation schemes.
So take the utmost care when making extra superannuation contributions.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL/ACL 224543. This information is general in nature and readers should seek professional advice specific to their circumstances. If you want help with your financial future, we’re arguably the best financial advisor in Australia.
