ATO tax hit warning if you make this superannuation mistake

Pumping extra cash into superannuation is a great way to grow future wealth, as long as you don’t forget to check this number.

Super fund members are being urged to check their contributions and caps as the end of the 2020-21 financial year approaches.

Great tax benefits are available to people who pump extra cash into their super through salary sacrifice or one-off payments, and the Australian Taxation Office has issued an update reminding individuals that paying too much leads to penalties.

The current cap for tax-deductible contributions, known as concessional contributions, is $25,000 a year, rising to $27,500 from 2021-22. These contributions include employers’ compulsory payments and personal deposits.

Exceed your cap and the excess gets added to your assessable income and taxed at your marginal rate of up to 47 per cent including the Medicare Levy, and extra interest charges may apply.

ATO assistant commissioner Sonia Corsini says people can review their available contributions space by logging into ATO Online via MyGov.

“This will display the information your super funds have provided to us,” she says.

“You can contact your superannuation fund directly for any additional information.

“Everyone’s circumstances are unique and so we encourage you to seek professional advice relevant to your situation.”

Concessional contributions are taxed at 15 per cent going into super, and once inside there are low tax rates and eventually zero tax.

“Your contributions count in the year your super fund receives them,” Corsini says.

“You might see a contribution on your pay slip but remember that it might not be received by your fund until some time later. If you intend a contribution to count in this financial year, make sure you contribute it to your fund well before 30 June.”

MBA Financial Strategists director Darren James says super caps were historically a “use it or lose it system” but recent rule changes allow people with balances below $500,000 to make catch-up contributions of previously unused caps.

“Make sure you include your employer contributions in your $25,000 cap, which is what a lot of people overlook,” he says.

James says your super fund can give you a report showing the contributions you have made, and says MyGov “has come a long way”.

“If you have more than one super fund you don’t have to guess how much has gone into one and the other – with MyGov it’s a consolidated report,” he says.

Originally published as ATO tax hit warning if you make this superannuation mistake