Ask the Expert: Some curly super questions – and where to find answers

Question 1

  • What happens if you exceed your annual superannuation concessional cap?

Concessional contributions are before tax contributions to super. These include employer SG [superannuation guarantee] contributions, salary sacrifice contributions and personal tax deductions that you claim a tax deduction on.

The concessional contributions cap essentially limits the amount of concessional contributions you can make into super by removing the tax concessions on excessive contributions.

The current standard cap is $27,500 (it may be higher if you are eligible to use carry forward contributions).

If you do exceed your concessional contributions cap it’s no longer a big deal as penalties no longer apply. The ATO will send you a notification to let you know that the excess amount will be included in your taxable income for the year that you breached the cap. You then end up paying income tax on the excess amount at your marginal tax rate (less 15 per cent tax already paid by your super fund). Effectively this just puts you in the same position as if you did not make any excess contributions.

Apart from paying the additional income tax, you then have the option of leaving the excess in super, in which case it converts from a concessional contribution to a non-concessional contribution, or you can just take the excess amount out of super.

If you do leave the excess in super and it converts to non-concessional contributions, just be careful this does not lead to a breach of the non-concessional cap as interested penalties apply in that instance.

Question 2

  • Your latest answers got me thinking. I had completed a binding beneficiaries form and lodged with my industry super fund. My beneficiaries are my husband and two (adult) children. If I want my children not to pay 17 per cent tax on this, how do I write it in my will? Then I will also complete a new beneficiary form.  Is this the same ruling for a SMSF, if I have also completed a binding form? Many thanks, love reading your advice, Carolyn.

Hi Carolyn, thanks for your comments.

Yes adult (non-financially dependent) children pay 17 per cent tax on benefits paid from super. That is regardless of whether the fund is retail, industry or SMSF.

If the super funds go to your estate first, i.e. are not paid directly from the super fund to your children, then the tax is still payable with the exception of the Medicare Levy, so it reduces to 15 per cent instead of 17 per cent.

Note the tax is only payable on the ‘taxable component’ of your balance. Ask your fund to confirm what this amount is.

Ways to reduce this tax:

  • Only have your non-super assets paid to your adult children. Although this does not always work as your husband may pre-decease you and the money has to go somewhere.
  • Cash out funds from super before you die. The problem here is whileyou know your date of birth, I doubt you know your date of death.
  • You could look to cash out and then recontribute funds to super. Essentially converting them from taxable components to tax free components. I covered this in a previous article. There are some traps and super caps to this so I would suggest receiving some advice from a financial adviser or super fund first.

Question 3

  • I read with interest the question about redeeming a defined benefit pension from the UK. Are we able to redeem a defined benefit from within Australia? I am an ex Australian Defence member and receive payment from the Defence Force Retirement and Death Benefits Scheme.

This is quite a complex topic. Ultimately the Australian Tax Office makes the rules around transfers from a foreign super fund to an Australian super fund, and it might be worth referring to the specific information on their website for more information:

Given this complexity I would also strongly recommend you seek advice from a licensed financial planner to discuss your individual circumstances and options. As you already have a super fund administered by the Commonwealth Superannuation Corporation (CSC) you could also contact them for advice.

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.

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