Don't bust a cap

Made a last-minute check of your superannuation contributions? Don’t delay. It’s not too late.

Summary: Exceeding super contributions caps sets off a headache best avoided. If you’re likely to go close to your limits, now is the time to check. Contributions count at the date they were received, so check when contributions actually hit your account in July last year.

Key take-out: If you’re looking like you might break your concessional contribution caps, it might be possible to ask your employer to delay the contribution until the new financial year, or to cancel a salary sacrifice arrangement for the final week or two.

Key beneficiaries: SMSF trustees and superannuation accountholders. Category: Superannuation.

None of us has enough time to do everything we want to do before June 30.

There’s only two weeks left. But there are tens of thousands of you who should make the following a priority. Arguably, anyone who has been seeking to maximise their contributions for the current financial year and who is relying on someone else to pay those contributions, should be making an urgent check at this time of year.

For some it could be too late. For others, checking now could save you a headache, or tax, or both.

Have you checked the contributions that will be made to your super funds this year? This is particularly important for those who have been trying to get as close as possible to your contribution limits, without busting them.

Do you know exactly how much is going into your fund this year? While there are no real problems with falling short of your concessional contribution limits – except that you might be missing maximising your super contributions and paying unnecessary tax – going over your limits can be costly from a time perspective in backwards and forwards with the ATO.

It’s in the final few weeks of the year that a lot of panic goes in to getting money into super. But for many, it should also be a time to consider making sure that some contributions don’t go into super.

Exceeding contributions caps (both concessional and non-concessional) does not incur the same vicious penalties as years gone by (where super money could be taxed at up to 93 per cent), but it still sets off a headache best avoided.

So, what do you do?

If you’re likely to go near to your limits, or have been trying to get as close as you can without going over, now is the time to check.

First of all, it’s important to know that contributions count at the date they were received. Even if it relates to a prior year (say, before June 30, 2015), if it’s not paid until July 1, then that contribution will count towards the following financial year.

Employers do not have to pay their SG contributions until the 28th of the following month. So, if you’re an employee, your employer might pay your SG contribution on July 3 for work you did in the year that finished on June 30.

The contribution counts towards the 2016 financial year, not against the 2015 financial year.

For that reason, it’s important to go back to July last year and find out when contributions actually hit your account. If you have an arrangement with the pay office to salary sacrifice an amount into super, along with any SG, then you need to monitor this. Your pay office is “all care, no responsibility”.

The timing of payments is crucially important.

If you’ve got an SMSF, then checking contributions should be reasonably straight forward. There should be only one bank account where money should come in.

If you have an APRA fund – everything other than a SMSF – then it will likely involve a phone call to your super fund’s call centre, though more and more are giving full online access, so you might be able to do it via their website.

If, after doing that, you’ve discovered that you are likely to bust a cap, what happens?

If you’re looking like you might break your CC caps, it might be possible to ask your employer to delay the contribution until the new financial year. Or you might be able to cancel a salary sacrifice arrangement for the final week or two.

Note: A reminder that the concessional contributions caps for this year are $30,000 for those aged under 50 and $35,000 for the over-50s. The non-concessional contributions (NCC) cap is $180,000, allowing a three-year pull forward of $540,000 for those eligible. There are strict rules around being able to access the three-year pull forward if you’re approaching 65, so seek advice before making those contributions.

Busting caps – the change of rules

If you bust a cap – whether CCs or NCCs – nowadays, you get the option to pull the money out of super. But it’s still a paperwork headache that’s best avoided.

For excess CCs, the contributions are taxed at marginal tax rates and an interest charge is payable. Individuals can withdraw excess amounts from a fund, net of a 15 per cent fund tax.

For NCCs, individuals have the option to withdraw excess amounts, plus earnings, with the 15 per cent super tax taken out. Those earnings are then taxed at marginal tax rates. If you leave the excess in the fund, it will be taxed at 49 per cent this financial year, because of the 2 per cent “temporary budget repair levy”.

Bad bosses – employers not paying their super

The report from the Australian National Audit Office in recent weeks painted a glum picture of how many employers are actually paying super.

It is estimated that somewhere between 11-20 per cent of employers aren’t paying their Superannuation Guarantee entitlements. It’s an astonishing figure that shows, to a degree, how toothless the Australian Taxation Office is in enforcing these payments.

If you suspect that your employer isn’t paying your super, you’ve got to act early. Trying to chase down payments from years ago, or from a company that has folded, can often be nigh on impossible, even for the ATO.

The ATO’s website suggests that you should first go to your employer and ask them to fix up the payments. That’s not always going to be possible.

The ATO can chase down unpaid super for you. And make life uncomfortable for the employer who has refused to pay, or for directors who think they can use the money to assist cash flow.

I’ve used the ATO’s service on behalf of a client. It was efficient. To the point where the ATO sent a cheque, but it didn’t seem like enough money had been paid by the employer to cover salary. We wrote back to the ATO and said that we didn’t think the employer had been honest in what should have been the final payment. The ATO listened to our version of events, again quizzed the employer, and a few months later, a second cheque arrived.

That business was still operating at the time, which made life a bit easier. But it’s still nicer to have the ATO on your side, fighting your battles.

The information contained in this column should be treated as general advice only. It has not taken anyone’s specific circumstances into account. If you are considering a strategy such as those mentioned here, you are strongly advised to consult your adviser/s, as some of the strategies used in these columns are extremely complex and require high-level technical compliance.

Bruce Brammall is managing director of Bruce Brammall Financial. E: Bruce’s new book, Mortgages Made Easy, is available now.

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