The incorrect classification of superannuation contributions by fund members is the most common mistake that leads to breaches of the contributions caps, according to Macquarie Adviser Services director David Shirlow.
“There are a variety of different contributions and they all have their own kind of caps that apply. The most common are concessional and non-concessional contributions and we get a lot of problems with people putting in the notice for a particular contribution at the wrong time,” Shirlow said.
There are around five different deadlines super fund members need to be aware of in regard to claiming a tax deduction for contributions, and if one of these deadlines is missed, it can result in an intended concessional contribution being treated as a non-concessional contribution, he said.
Actually knowing what type of transaction constitutes a contribution is another trap that catches fund members out when trying to stay within the caps limits.
The Australian Taxation Office has just issued the final ruling on what it considers to be a superannuation contribution to potentially clarify the situation for members.
“Various sorts of payments into the fund or payments of liabilities are actually going to be caught as contributions and potentially cause cap problems,” Shirlow said.
Examples of transactions that would constitute a contribution to the fund are external payments of fund liabilities, perhaps by a related party, and improvements to the value of the fund’s assets.
Other actions resulting in contributions caps breaches include incorrect timing of the contributions, overlooked contributions not originally accounted for, and inaccurate valuations of contributions such as in-specie transfers.
“For example, if the contribution is a parcel of shares and was just within your contribution cap when you thought it was made but in actual fact the contribution had been made earlier or later, and the share price is volatile, then you can find if you get the timing of the contribution wrong you also get the value of the contribution wrong and may have a problem arising from that as well,” Shirlow said.
