Tough new restrictions on superannuation concessional contributions caps are hurting small business owners, according to super experts.
Concessional contributions include employer contributions and personal contributions claimed as a tax deduction by a self-employed person.
Caps apply to contributions made to superannuation in a financial year. According to the Australian Taxation Office, any super contributed over a cap amount is subject to extra tax.
The cap in 2010-11 is $25,000 for all people under 50, and $50,000 for those aged 50 to 74. From July 1, 2012, the concessional contribution cap for the 50-74 age bracket will fall to $25,000 as well.
However, the government will keep the cap at $50,000 for those aged 50 or over who have total superannuation balances of less than $500,000.
An ATO spokesperson says this will allow these individuals to ‘catch up’ on their super contributions at a time when they are most able to do so.
“This measure will improve fairness by targeting concessions to those with the greatest need to build their retirement savings… It will particularly benefit those who have had periods outside the workforce,” the spokesperson says.
According to Intrust Super chief executive Brendan O’Farrell, the $25,000 cap on concessional super contributions is too low.
“There is no real ability for these people to catch up via salary-sacrifice contributions… I have seen this happen numerous times where people come back from lengthy periods off work and one partner dumps all their salary, especially those re-entering around age 45, into super for the exact reason of building their balances and catching up for lost time to provide a reasonable standard of living in retirement,” O’Farrell says.
“But the contribution caps don’t allow that now.”
Marinis Financial Group financial strategist Theo Marinis says the super rules also fail to allow for human error.
“The penalty for getting your super contributions wrong… results in the excess contribution being taxed at 46.5%, possibly even as much as 93%,” he says.
“Under current law, the penalty is final; there is no way to recoup or appeal the penalty tax.”
Marinis says that the possibility of error can be high, particularly for family-owned ‘mum and dad’ businesses, where there can be a range of super contributions processed by inexperienced staff.