What must we be aware of when making personal super contributions?
Those eligible to make personal super contributions (i.e. sole traders, partners in a partnership, business owners or company directors) must ensure their super contributions are being classified correctly. Although this is often a common mistake made by the individuals mentioned above and can be rectified at a later date, in many cases they will forego their right to a tax-deduction if completed incorrectly.
Contribution types from a super fund perspective:
Super funds need to be made aware of the type of contribution being made for the following two reasons:
- So contributions can be reported correctly on the fund’s member contribution statements each year, and
- To determine whether the contribution is assessable income of the fund and is therefore taxed at 15% and forms part of the client’s taxable component
Some of the main contribution types include: employer contributions, personal contributions, spouse contributions, as well as certain other specific contribution types. Interestingly you should know that it is not the job of the super fund nor do they determine a member’s concessional and non-concessional contributions and whether contributions caps have been exceeded – this is done by the Australian Taxation Office (ATO).
The ATO uses a super fund’s member contribution statement, along with a client’s income tax return in order to classify employer and personal contributions into the two categories of concessional and non-concessional.
What are the impacts of incorrectly classifying contributions?
Impact of incorrectly classifying personal contributions as employer contributions
A member of a super fund who incorrectly classifies a personal contribution as an employer contribution and also claims a tax deduction for the contribution will risk receiving a notice from the ATO at tax time stating that they have exceeded the concessional contributions limit. This will be due to the ATO counting the contribution twice.
Allan (aged 45) intends to make a $30,000 personal tax-deductible contribution to his superannuation fund. However, when he makes this contribution he incorrectly advises his super fund that the $30,000 is an employer contribution. Allan then at tax time goes to claim a $30,000 tax deduction for the contribution made to his super fund. The ATO is likely to count both contributions of the $30,000 employer contribution and $30,000 personal tax-deductible contributions towards his concessional contribution cap. Allan will likely then be notified by the ATO that he has exceeded his $30,000 concessional contribution cap by $30,000.
It must be noted that the superannuation contribution caps for both concessional and non-concessional contributions are set to change on 1 July 2017 once the new budget proposed changes are passed by legislation. We will continue to keep you updated surrounding this area. If you wish to learn more you can see our other articles published on our website.
Ability to amend incorrectly classified contributions
If a super fund has reported materially incorrect information on a member contribution statement, the fund must lodge an amended member contribution statement with the correct information within 30 days of becoming aware of the error. The ATO has made clear in the past that this requirement applies regardless of how long it has been since the contribution was made.
Superannuation is a widely-misunderstood area of financial advice and one in which we specialise in. If you would like to speak with our financial planning team and accounting team surrounding your superannuation contributions as well as taxation of your superannuation, then please contact us so we may arrange a time to meet.
Total Advice Partners are available now to assist you with all of your enquiries. Please feel free to contact us at any time to discuss your situation and financial needs.
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