Many people I speak with are unclear about when their contributions are counted against their superannuation contribution caps.

Employees often believe it’s when the amount shows on their payslip.

Business owners may think it’s when the accrued contribution is in the books or when the money leaves the business bank account.

 

What are the facts and the reasons behind the misunderstanding?

Firstly, let me state that it’s crucial to understand else face a loss of access to contributions, penalties, and additional taxes.

The fact is that contributions, regardless if they are concessional (pre-tax) or non-concessional (after-tax), are counted when they are received by your Fund and allocated to your member account.

Here’s an explanation of the differences:

  • In some cases, the contribution amount is received by the Fund but not allocated to your member account, i.e., held in reserve.
  • Payslips show the amount that is to be paid in the period on your behalf.
  • The current liability “Superannuation Payable” account in the business books, shows the amount of superannuation due to be paid.
  • The expense “Superannuation” account in the business books, shows the amount of superannuation that has been transacted by the business, i.e., the payment “sent”.
  • Based on the type of contribution and method of payment used by you personally or the business, there may be a timing difference between when you or the business makes the transaction and when the Fund receives the money. For example, typical straight through processing (STP) via business bookkeeping software such as Xero, MYOB, QuickBooks, etc. send the funds via a clearinghouse, which can take 3-5 days to be received by the Fund.
  • Using the small business superannuation clearing house (SBSCH) has different rules for the timing of receipt of member contributions types by the Fund (see below).
  • Once received by the Fund, the money must then be processed and allocated to the member account. Processing delays may occur, particularly at peak times such as the end of the financial year or when it is unclear to the Fund what type of contribution is being made by the member. In which case a reserve account may be used until the monies can be correctly allocated.

 

What are some of the consequences of getting it wrong or mistiming?

Individual:

  1. Contributions caps are not maximised in the financial year as intended.
  2. May fail contribution eligibility in the future, such as age limits, work tests, or carried forward unused caps.
  3. Excess contributions received by the Fund in a financial year.
  4. Treatment of excess.
Contribution Type Description
Concessional Contributions
  • Tax at marginal tax rate less 15% offset
  • Interest charges
  • Option to withdraw excess net of 15% Fund tax
Non-Concessional Contributions
  • Option to withdraw excess amount plus associated earnings net of Fund 15% tax. Associated earnings tax at marginal tax rate less 15% offset.
  • Excess amounts not withdrawn taxed at 49% (2019/20)

 

Depending on the business you are employed by, your contributions may be sent on the 28th day of the month following being included in your pay and showing on your payslip, 28th day of the month following the quarter end, some other date or not paid at all.

Tip: Check with your payroll department to ensure you know when your Fund should receive the contribution, and regularly check that it is being paid. You should check the transactions on your superannuation member statement or online to confirm all payments.

 

Business:

  1. If you don’t pay an employee’s super on time and to the right fund, you must pay the superannuation guarantee charge (SGC) and lodge an SGC statement with the ATO. The SGC is not tax-deductible.
  2. Small business superannuation clearing house (SBSCH) – Super guarantee (SG) payments are taken to be received by the Fund the same day that the SBSCH gets the cash. However, for salary-sacrifice contributions, if you wish to claim a deduction for contributions in a particular financial year, you need to make sure the super fund receives the payment before the end of that financial year (the Fund cut-off date).
  3. Other clearinghouses – you need to make sure the Fund receives the cash in the relevant financial year. Therefore, if it’s crucial to your business that the contributions are received and allocated by the Fund cut-off date, so that a tax deduction is available or a penalty avoided, ensure that you act by the relevant date.

Tip: Contact Finesse Financial Advisers for further information or clarification on the above. We can assist you to plan your contributions and payments.

To ensure you are on the client list for a tax planning session for the 2020/21 year, please contact our office to arrange an appointment.

 

Disclaimer

This material is provided for information only. No account has been taken of the objectives, financial situation or needs of any particular person or entity. Accordingly, to the extent that this material may constitute general financial product advice, investors, superannuants and policy holders and others should, before acting on the advice, consider the appropriateness of the advice, having regard to their own objectives, financial situation and needs. This is not an offer or recommendation to buy or sell securities or other financial products, nor a solicitation for deposits or other business, whether directly or indirectly.

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