Wednesday 7 July 2021

The difficulties with getting concessional superannuation contributions exactly 'right'

I've tried to contribute the maximum amount allowed as a concessionally taxed contribution in my superannuation each year. For the last few years that was $25,000 pa, but this FY it has been increased by 10% in line with CPI increases since the decision to regularly index was legislated.

As I had setup a 'salary sacrifice' arrangement to make additional employer contributions in exchange for a reduction in take-home pay, I didn't bother changing this when they introduced tax deductibility of contributions for employees. I had expected to wind up pretty close to the $25,000 'cap' for last FY, as I was expecting a small pay rise in Feb when my employer does their annual salary reviews (it turned out that this year was 0% increase), and aside from the normal SGL contributions my employer also makes some 'additional voluntary' contributions to reimburse part of the superannuation fund admin fees, and to pay for the standard amount of life, TPD and IP insurance offered as part of our superannuation plan (this is this reason why I currently have employer contributions going into the company's super scheme, while most of my super is sitting in our SMSF - the extra cost of having two super funds is more than offset by the benefit of the 'free' insurance cover).

Since the FY has ended I was able to log in to the superannuation fund online platform and check all the contributions made during the FY. All the expected contributions add up to a few hundred dollars over the $25,000 cap, which is fine as I would only have to pay extra tax equivalent to the difference between the concessional 15% tax charged on concessional contributions and my marginal tax rate. The excess is then reclassified as being a non-concessional contribution, but as I make hardly any non-concessional contributions I am well below the $100,000 annual limit for non-concessional super contributions.

However, for some weird reason one month my employer had paid three lots of the normal bi-monthly SGL contribution, which made my excess CC another $500 or so higher. What is worse is that they had a late monthly payment arrive in the super fund accounts in early July 2020 in addition to the normal contribution towards the end of July, and then this June the monthly payment was deposited exactly on 30 June. This meant that last FY I received 13 'monthly' SGL and salary sacrifice contributions, which added another couple of thousand dollars worth of 'excess concessional contributions'. This will mean I'll probably have to pay an extra $500 or so tax. But since they appear to have made an extra bi-monthly deposit I'm not too upset (although I suspect this 'extra' payment has something to do with the how they calculate the bi-monthly payments, and not really anything 'extra'). They also have already been contributing 10% SGL since 2018 instead of the required 9.5% (which only increased to 10% from 1 July). I just wish the 'monthly' contributions were deposited on a more regular schedule so it was possible to make a more accurate calculation of how much the annual concessional contributions total will be before the end of the FY has passed and it is too late to make any adjustments.

I'm actually an employee-appointed representative on the company superannuation committee, so I had mentioned the difficulty in working out how much 'spare' CC cap was left at the end of the FY (so one could make a 'top up' contribution and claim a tax deduction for it, to exactly meet the cap amount. The super fund rep told me to check the online transactions in late June to work out what the total contributions were -- but since the final contribution was only credited at close of business on 30 June that would have been too late to make any voluntary contribution anyhow!

I'm going to leave my current salary sacrifice arrangement in place for this FY - due to the increase in the CC cap I should have plenty of 'cap space' left next June (especially as they won't be able to squeeze in a 13th monthly contribution now that they are completely up to date), and I should be able to calculate the 'cap space' in the last week of June and work out how much I can deposit as a voluntary tax deductible super contribution to just hit the CC cap.

Aside from the concessional contributions I might also make a $100,000 non-concessional contribution into my Qsuper account, as I want roughly that amount (or more) in the QSuper account so I transfer it into their lifetime annuity product when I retire. Once my total super balance (TSB) exceeds the $1.7m TSB cap I won't be able to make any further non-concessional contributions into super (except if I make a 'downsize contribution' of up to $300K if/when we sell our home). Fortunately you can still make concessional contributions (SGL and salary sacrifice) after you reach the TBC.

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Dazza said...

Forget salary sacrificing, it's too complex as you say - or at least forget it in the last month or two of the year. The better alternative is to do a personal deductible contribution via, which you can do just before midnight on the 30th June, after verifying no sneaky little other payments hit your account (this is easier in a SMSF where you can see these in realtime which you might not be able to in a retail product). said...

Yes and No. When I started the salary sacrifice arrangement tax deduction for personal contributions wasn't available for employees. If I was starting now I wouldn't bother with the salary sacrifice. However, moving to making personal deductible contribution instead of salary sacrifice wouldn't help as I have both an SMSF (where I know exactly what contributions have been made and could do a 'top up' contribution at the last minute as you suggest) and the company selected default superannuation fund. I have kept that fund as my employer refunds part of the admin fee (so it doesn't cost much) and also refunds the insurance premiums paid for the basic life and TPD insurance cover (so the net benefit is more than the small extra admin cost of having two funds). As some of these payments are 'employee additional' concessional contributions, they would still could towards my $27,500 concessional contributions cap, and I wouldn't know until 1st July if there had been deposit processed into that account of 30 June - so I could still exceed my cap even if I calculated my 'cap space' just before midnight on 30 June and made a payment into my SMSF bank account. It would make the potential excess much smaller, so it would probably be the best option if I was starting from scratch.

Dazza said...

Thanks for the explanation. Yes, what you're doing makes sense then if you're unable to understand what the premiums are for the insurances your are rebated by your employer.
I used to work for one of the "big 4" banks in Australia and the only way an employee could change their salary sacrifice was by % of salary. At the end of the year I had to spreadsheet to see how much had been paid and adjust by % of salary. It was quite ridiculous. Interestingly on the couple of times I queried with the bank it seemed that very few of these supposed financially literate and well paid colleagues of mine salary sacrificed (and this before the availability of deductions) and so they had no motivation to change. I guess they all 'invested' (speculated) in 'propadee' though!