SMSF members needed to act quickly to ensure they did not inadvertently exceed the contributions cap and pay significant tax penalties because of the extra pay period this year, Self-Managed Super Funds Professionals' Association of Australia (SPAA) national technical director Peter Burgess pointed out.
Advisers were urged to be particularly aware of any clients who may have a salary sacrifice plan that has them flying close to the concessional contribution cap.
"This is a unique financial year where we have 27 pay fortnights. For those who have worked out a salary sacrifice plan for puts them close to the $25,000 contribution cap, that extra pay period could accidentally push them over that cap," Burgess said.
Penalties for individuals exceeding their concessional contribution limits by even by a small amount can be incredibly harsh - especially if they have also maximised their non-concessional contributions. Excess concessional contributions are not only taxed at 31.5 per cent on top of the 15 per cent contributions tax, they are then allocated to the non-concessional contributions, and if these were already maximised that excess amount is again taxed - this time at 45 per cent.
It means an excess contribution could incur a tax liability as high as 93 per cent which would in effect wipeout that particular contribution to their fund, Burgess said.
"Basically the member has lost all that contribution in tax for inadvertently going over the cap," he said.
There were two solutions to avoid the problem but both needed to be implemented this week, Burgess said. One was for members to ask employers to hold over their last salary sacrifice contribution until next financial year. The other was to direct the excess amount into a contribution reserve this year with the intention of allocating the amount to the fund in the next financial year.
