The severe tax penalties for excess super contributions are not necessarily targeting the people the Australian Taxation Office (ATO) intends, according to the director of Keep it Simple Super, Julie Taylor.
Taylor’s business offers self-managed super fund (SMSF) administration and compliance support, and she highlighted the case of a blue-collar worker who may face a 46 per cent tax penalty of his entire retirement savings.
Panicked by the loss of thousands of dollars every week from his superannuation account during the market downturn, the man set up an SMSF. Ignorant of the law he withdrew his savings and placed it into his SMSF instead of rolling the money over, incurring an excess contribution penalty tax. Taylor said an application had been sent to the ATO to show discretion as the man faced serious financial hardship. However, she was not certain whether the ATO could show discretion in this case.
Taylor believed that instances of those unintentionally breaching contributions caps was likely to worsen, since not only had the contributions caps been lowered, but the ATO appeared to have broadened the definition of what a contribution constituted. She said that things that in the past the industry would not have considered remotely as contributions were being brought into doubt as a result of the wording of new tax rulings.
“That really makes the adviser’s job more difficult, because they are trying to provide for something that they have no control over,” said Taylor. “You just don’t know how much of a buffer you have to leave there. And what if their clients were trying to get the most in? Were the advisers doing the best by their clients if they left a buffer for something that may never happen? It’s really tricky.”
Taylor said the statistics showed that more people were getting caught out, and yet they were most often the ones who had no intention of breaching their caps. She said this created a disincentive to contribute. The case of the blue-collar worker was not only an example of this, but also highlighted the need for greater education and advice regarding super and especially SMSFs, Taylor added.
