[breakoutbox][breakoutbox_title]Table 1. Super contributions caps[/breakoutbox_title][breakoutbox_content]
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[breakoutbox][breakoutbox_title]Table 2. Breaches of contributions caps[/breakoutbox_title][breakoutbox_content]
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Due to a halving of the concessional cap from 1 July 2012 for those aged 50 or above with balances greater than $500,000, the number of breaches is likely to increase. The consequences of such breaches can be quite severe.
The cause of the problem
The incidence of excess contributions is due largely to the following two factors:
- high income earners exceeding their CC caps due to the mandatory nine per cent superannuation guarantee
- members contributing up to their allowable contributions caps failing to consider all contributions.
High income earners
Some members automatically exceed their CC caps due to the mandatory nine per cent superannuation guarantee (SG). In the absence of multiple employers, due to the maximum superannuation contributions base of $168,880, CC caps should rarely be exceeded as the maximum amount required to be contributed is $15,200.
The problem arises when members have multiple employers contributing nine per cent superannuation. Unfortunately there is presently no ‘opt out’ provision allowing the member to elect not to receive the super guarantee even though it causes them to exceed their CC caps.
Members contributing up to their allowable contributions caps
Another factor leading to excess contributions arises when members contribute up to their contribution cap without considering all contributions made in the relevant period(s). When members fail to consider, or inform their adviser of all sources and amounts of contributions, once the caps have been reached, any subsequent contributions will cause the caps to be exceeded. For an understanding of what and when a contribution is made, you should refer to Taxation Ruling TR 2010/1.
Consequences
The consequences of exceeding the contributions caps can be severe. Excess CCs will incur tax of 31.5 per cent, in addition to the 15 per cent already taxed. However, as excess CCs are added to the member’s NCCs, and taxed at 46.5 per cent if this cap is exceeded, excess amounts could possibly be taxed at 93 per cent if both caps are exceeded as shown in the example below.
Example 1
John, aged 68, makes the following contributions:
Employer SG – $13,000
Salary sacrifice – $50,000
NCC – $140,000
The tax on John’s concessional contributions is ($13,000 + $50,000) × 15 per cent +$13,000 × 31.5 per cent.
For the non-concessional contributions, the $13,000 excess CC is added to the NCC amount, totalling $153,000, exceeding the cap by $3000 (see table 1), and taxed at 46.5 per cent. The excess $3000 has now been taxed three times, at 15 per cent, 31.5 per cent and 46.5 per cent, bringing the total tax on the $3000 to 93 per cent.
