Super Sting

There was an interesting article from the Weekend Australian Financial Review (April 2-3, 2011) called "Hit by 93% slug" that I wanted to share with you.

A summary of the mains points are as follows: 

• Arthur (not his real name) is 56.

• He made $80,000 in concessional contributions to his super fund.

• Arthur forgot the cap for such contributions was halved 2 years ago from $100,000 to $50,000. 

• His payment included compulsory contributions, salary sacrifice contributions and the super component of a bonus payment.

• Arthur has always taken 50% of his bonus as cash and redirected the remaining 50% to his super fund as an employer contribution. He didn’t change this and exceeded his $50,000 concessional cap contribution by $30,000.

• The total tax payable on the $30,000 excess concessional contributions is $13,950 or 46.5% (31.5% penalty tax plus 15% contributions tax).

• Worse, the $30,000 in excess concessional contributions also counted towards Arthur’s non-concessional contributions cap. 

• During the same financial year Arthur received an inheritance when his mother died and he made a $450,000 non-concessional contribution under the bring forward rule that allows 3 years worth of such contributions to be made in a lump sum. 

• Arthur's total non-concessional contributions were $480,000 or $30,000 more than allowed. 

• The total tax payable on the $30,000 excess non-concessional contributions was $13,950 (46.5% excess non concessional contributions tax).

• Arthur lost $23,400 or 78% of his original $30,000 in penalty tax and a further $4,500 or 15% in regular contributions tax.

• The total tax bill on that $30,000 excess contribution is $27,900 or a super sting of 93%.

My thoughts - making extra contributions to super is a great way to save for retirement but without professional advice the consequences can be devastating.
 

Important Information

The above information provides an overview or summary only and it shouldn’t be considered a comprehensive statement on any matter or relied upon as such. The above information doesn’t take into account your personal objectives, financial situation or needs. It’s important for you to consider these matters before making any financial decision and I recommend you seek help from a financial adviser.