Q: I make salary sacrifice super contributions in addition to my employer’s compulsory contributions. I have checked with my super fund and it looks like my concessional contributions are going to be above the $25,000 cap. What happens now?
A: Concessional contributions include contributions received from an employer, salary sacrifice into super and personal contributions for which a deduction has been claimed.
Your employer can’t change compulsory super guarantee amounts or amounts paid under a contract or industrial agreement.
Concessional contributions above the cap are included in assessable income and taxed at the individual’s marginal rate. The ATO applies a 15 per cent offset when calculating the tax owing, in recognition of the contribution tax paid.
The ATO applies an excess concessional contributions charge to the tax liability arising from the excess contribution. The purpose of the charge is to make up for the fact that the tax on the excess contribution is collected later than normal income tax.
You can choose to withdraw some of the excess contributions to pay the additional tax. Individuals have 60 days to elect to release the excess. If you don’t withdraw the excess amount, it will be taxed at 47 per cent.
Once made, the election cannot be revoked, so taxpayers should first ensure that their super fund has correctly reported their contributions to the ATO before making an election.
You may be able to make use of contribution catch-up rules to deal with this problem. Fund members can carry forward concessional super contributions if their contributions in any given year fall under the $25,000 concessional contribution cap.
Fund members whose contributions exceed the cap can make use any unused concessional contributions from the five previous years to avoid penalties for being in breach.