Irrespective of how much planning that is done in the lead up to 30 June sometimes things still fall through the cracks. If you have made a contribution in June 2011 that has exceeded your contribution caps, there may be a way out!
As we know, the ATO is set on taxing us as ridiculous levels (up to 93%) if we exceed our contribution caps, whether it was by mistake or not. The Government is the law maker and the ATO is the enforcer of those sometimes nonsensical laws. This ties the hands of the Commissioner when it comes to exercising discretion in situations when you have exceeded your contribution caps.
If you are running a Self Managed Superannuation Fund and your Trust Deed allows it, you may have the opportunity soften the blow if you have managed to contribute more than you should have to superannuation in 10/11 and are now waiting on a call from the ATO.
This can be done by utilising Contribution Reserves to house the contributions made in June 2011 and not allocating them to member accounts until the 2011/12 financial year. This will allow the contribution to possibly be counted in your 2011/12 contribution cap rather than 2010/11 which may give you the breathing space required if you are in excess.
It may also allow the contribution to be claimed as a tax deduction in 2010/11 but not counted towards your contribution cap until 2011/12.
For this strategy to work, the allocation to member accounts needs to be made prior to 28th July 2011 which often means the opportunity is lost as most people won’t realise they have made the mistake until preparing for lodgement which occurs in early 2012.
This strategy could save you tens of thousands of dollars in potential excess contributions tax so now is the time to go back and check what contributions you made in 2010/11. Remember to include any insurance premiums that may have been setup years ago as Term Life Super contracts. It is not uncommon to forget these often very small premiums and incur a tax bill of up to $76,000 due to how the contribution laws are applied.
There are several technical aspects that need to be addressed before attempting to implement this strategy so it’s imperative you speak to your adviser and receive suitable financial advice to determine if it’s suitable. This is not financial advice.
