Be wary of hefty tax penalties if contribution limits exceeded
THERE are two main types of super contributions an individual can make. The first and most common is a concessional contribution for which either the employer or the member making the contribution receives a tax deduction.
THERE are two main types of super contributions an individual can make. The first and most common is a concessional contribution for which either the employer or the member making the contribution receives a tax deduction.The second is a non-concessional contribution that is made by an individual from after-tax funds. Both of these contributions have limits on how much can be contributed, with severe penalties imposed when the limits are exceeded.Q I have made the maximum "bring-forward" non-concessional contribution of $450,000 this year, but because I have two jobs I will also breach the $25,000 concessional cap by about $2000 this year and the following two years, which I understand will be added to my non-concessional contributions. Can I withdraw $6000 before the end of the financial year to reduce my non-concessional contribution to $444,000 this financial year?A Unless a person meets a condition of release they cannot withdraw money from a superannuation fund. If this is done, tax is paid on the amount improperly withdrawn at the top marginal rate. In your case it does not sound as if you are 65 or older, and therefore could not withdraw the $6000. Even if you could, your fund would still have to advise the Tax Office that you made the contribution. For the 2011 year excess concessional contribution, you will not be able to do anything. This will result in tax being paid at 46.5 per cent on the $2000 excess contribution and this will then be classed as a non-concessional contribution.As you have already contributed up to your maximum non-concessional contribution limit, a further excess contributions tax of 46.5 per cent will be payable on the $2000. This will result in total tax payable on the $2000 of $1860.There was some good news in this year's federal budget that could provide some relief for you over the next two years. Under the change to the excess contributions tax regime, where the excess concessional contribution is less than $10,000, a person can have the excess contribution refunded by the superannuation fund without paying excess contributions tax.Unfortunately this change to the excess contributions tax will only apply to contributions from July 1, 2011, and can only be used for one excess contribution in a person's lifetime. This should mean the $2000 excess concessional contribution in the 2012 year will not be taxed. The excess concessional contribution for the 2013 will be taxed the same as the 2011 excess.Q I am retired and turned 65 on July 5 and contributed $450,000 to my self-managed super fund via a cash transfer to the fund on July 1. I am a little worried if there was a bank glitch and the transfer was delayed that I could be up for a horrendous tax bill. Am I right in thinking I won't have a problem as long as the money is deposited by July 28?A If for some reason the transfer was delayed until after your 65th birthday you would need to pass the 40-hour work test in the 2012 year. The requirement to have superannuation deposited by the 28th of the month following when the contribution was made relates to people who turn 75. Normally once you turn 75 no further contributions are allowed. The exception being if the contribution is received by the super fund 28 days after the end of the month in which a person turned 75.Questions can be emailed to firstname.lastname@example.orgMax Newnham's book, Funding your Retirement: A Survival Guide, is available in bookstores and as an e-book.