Federal Budgets often bring changes to superannuation arrangements and tax and the Treasurer’s 2011-12 speech was no different.
It’s in every business owner’s interests to stay up to speed on super and preparing for Tax Time is a good catalyst to seek professional advice.
Many people consider contributing greater amounts into superannuation before the end of the financial year to get the most out of their savings.
If you do, it is crucial to make sure you don’t exceed the contributions caps under any circumstances.
Just a few extra dollars can result in a substantial tax liability for excess super contributions tax.
The concessional contribution cap is currently $25,000 per income year generally, and $50,000 per income year for taxpayers aged 50 years old and over.
From 1 July 2012, the concessional cap will be $25,000 per income year for almost everyone.
The exception will be individuals aged over 50 who have total superannuation balances of less than $500,000.
Taxpayers falling into this category will retain the higher concessional contributions cap of $50,000.
The non-concessional contributions cap – meaning contributions made out of your post-tax income – is $150,000.
You may like to consider making additional contributions before the end of the income year to take full advantage of these caps. However, care needs to be taken to ensure you have accurately calculated the contributions you have made so far in the year, because tripping the cap can lead to incurring excess contributions tax, which can be levied at rates up to 93%.
The Government has announced it will be giving some relief for first-time excess contribution tax offenders, but it does not apply for the current income year.
From 1 July 2011, provided their excess contributions are less than $10,000, they’ll have the option of the money being taken out of their superannuation fund and assessed as income at their marginal rate of tax.
This move will make the system fairer for those who inadvertently breach the contribution cap, but not until the 2012 income year. In the meantime, it would be wise to talk to your tax professional to make sure you don’t end up with an unexpected tax bill.