The Self Managed Super Fund Professionals’ Association of Australia (SPAA) has today called for united industry and government action to remove unfairly harsh penalties for superannuation fund investors who make excess superannuation contributions in error. As a priority, SPAA is urging the government to amend SIS regulations to allow an automatic refund of excess contributions – without tax penalty – to the member.
This follows an ATO alert issued last week warning SMSF members and advisers against the use of trust clauses in SMSF trust deeds which attempt to restrict acceptance of super contributions in excess of mandated caps. The ATO identified about 35,000 cases of excess contributions for 2007/08 following the Howard Government’s introduction of concessional caps. The caps were then cut in half by the Rudd Government in the 2009 Federal Budget. Tax penalties for breaching the caps can be as high as 93%.
“At a time when Australia is struggling to address adequacy in retirement savings, particularly for babyboomers, it seems supremely unfair that superannuation investors who are attempting to save for retirement be penalised so harshly for unintentional breaches. Ordinary Australians work hard for their income so having to pay 93% tax on mandated compulsory savings is very inequitable,” said Andrea Slattery, SPAA CEO.
Ms Slattery said SPAA representatives are meeting this week with SMSF regulator, the Australian Tax Office and the office of Chris Bowen, Minister for Superannuation, Financial Services and Corporate Law and other industry leaders to discuss the issue.
“It’s important to note that since the 2009 budget changes to the caps, industry has been genuinely trying to find solutions to the problems many fund members (who are inadvertently caught out by punitive excess contributions tax penalties) face.
“SPAA considers that a long-term solution to the issue of excess super contributions tax requires a package of legislative reform and calls on the industry to join together to push for this reform,” she said.
“SPAA also calls on the Government to take immediate action to redraft SIS Regulation 7.04 to allow for refunding of excess superannuation contributions without penalty, including a transitional period to allow time for the detail to be worked out.”
Ms Slattery said the refunding option currently available to taxpayers under SIS Regulation 7.04 provides very limited relief for taxpayers and only applies in situations where the non-concessional contribution is on its own in excess of the cap.
“The limitation imposed by SIS Regulation 7.04 is the single most important factor behind instances of excess contributions tax and why the industry to date has been forced to find alternative solutions to the problem.”
“What would also help taxpayers is a Super Guarantee opt-out clause (similar to that which previously applied under the Reasonable Benefits Limit regime) for taxpayers with multiple employers and SG contributions in excess of the concessional cap,” Ms Slattery said.
“Finally, we would like to see the concessional caps returned to their pre-2009 levels so that those with a genuine desire to increase their retirement savings, particularly as they get closer to retirement, can do so. Many, including women and those with broken work patterns, must have the opportunity to provide for their own retirement savings so as not to rely on the age pension,” Ms Slattery said.
Excess contributions tax is payable when an individual’s super contributions in a financial year exceed the contribution caps. The cap on concessional super contributions was reduced from $50,000 to $25,000 in the 2009 Federal Budget. The existing transitional cap for concessional contributions for those aged 50 years and over was also reduced, from $100,000 to $50,000.