To avoid clients being hit with tax penalties on excess contributions advisers should be reviewing their salary sacrificing arrangements, according to industry experts.
The concessional super contributions cap is legislated to reduce from $50,000 to $25,000 on 1 July and the reduction of the cap may create severe consequences for people who are unaware of the new legislative changes, according to Mark Rantall, chief executive officer, Financial Planning Association of Australia.
Before this end of financial year draws to a close many people may need to reduce their concessionally super contributions to avoid being hit with severe tax penalties next year.
Rantall said disclosure of contributions made into super is very important and many consumers don’t realise the consequences of breaching the respective caps.
“Clients who have salary sacrifice arrangements in place with their employer should review these arrangements to ensure they won’t breach the reduced cap next year,” said Madeleine Said, senior technical consultant, RI Advice.
“Salary increases which increases a person’s SG entitlement and bonuses are just some of the unexpected contributions which could result in a person exceeding their cap.”
“If clients merrily go along and not realising that there has been a change and they end up with $40,000 worth of salary sacrificing and super guarantee contribution the next financial year they are $15, 000 above what they are allowed to have, so they will get hit with an extra 31.5% tax penalty on top of the standard 15%,” said Bryan Ashenden, senior manager, technical consulting, practice management, BT Financial Group.