News & Commentary

End-of-year super checkups 20 May 10


As the end of the financial year looms nearer, countless super fund members will be counting up contributions made during 2009-10 to check whether they are at risk of being subject to excess contributions tax.

This double-checking of contributions is a smart idea and, of course, should have ideally been conducted throughout the financial year as numerous professional advisers will no doubt have told their clients.

Considering there are just 41 days until June 30, many fund members may have already exceeded their annual caps on concessional or non-concessional contributions. Others may be in a position to make last-minute adjustments to their rate of contributions to fall within the appropriate caps.

It is understood that the tax office is yet to issue many thousands of assessments for excess contributions tax relating to past years.

Keep in mind that fund members who are making extra-large contributions – including those attempting to build-up their super balances in the final decade or so before retirement – are particularly vulnerable in 2009-10 to making excess contributions.

This is the first financial year when the Government’s measure to halve the annual caps on concessional contributions is in force.

The concessional cap is halved to $25,000 for members under 50 and halved to $50,000 for members over 50 (to be substantially cut again from 2012-13 to fall into line with the much lower-cap for members under 50.)

Certainly, there has been much coverage about the cutting of the concessional contributions cap, including by Smart Investing. Unfortunately, the reality of what the cut means may only be driven home to some members near the end of the financial year.

Members who overshoot the caps on both concessional and non-concessional contributions face tax of up to 93% o some contributions. In short, this means certain contributions could be almost completely eroded in tax.

This is, indeed, a testing time for some fund members.

 

* Written by Robin Bowerman, Head of Retail at Vanguard Investments Australia.
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