Warning for SMSF trustees

Trustees of self-managed superannuation funds are at risk of paying excessive tax if they inadvertently breach the current super caps, according to Perth-based Opez.

The full statement is below:

Self-managed super fund (SMSF) trustees are at risk of paying excessive tax if they inadvertently breach the current super caps.

SMSF specialist and Opez managing director Cindy McDonald said the excess contributions tax could be as high as 93 per cent if a trustee was found to be breaching the contributions caps set out in the tax act.

"We recently assisted a client who contacted us regarding potential excess contributions. They had been advised by their accountant to expect a tax bill of $293,000 as they believed both members had exceeded both their Concessional and Non Concessional Caps," Ms McDonald said.

"Knowledge of the Superannuation Industry Supervision (SIS) rules was lacking - and fortunately we were able to work within those to reduce the excess to nil.

"To avoid this, trustees or their advisors need to not only understand the SIS Regulations and Income Tax Assessment Act, but regularly monitor their super contributions. I can't stress enough that timing is critical. If you don't pick it up in time you could face some hefty penalties.

"For a simple mistake, these are some harsh penalties which could be devastating for the trustee."

Ms McDonald said about 300,000 trustees may have received a letter from the Australian Taxation Office (ATO) last year, warning of penalty tax for those who had exceeded the limits.

"Receiving letters from the ATO can be daunting and trustees may begin to panic when they read it," Ms McDonald said.

Ms McDonald said the ATO were still processing 2006 and 2007 contribution reports, and trustees needed to have their records available to double check their figures.

"The 'Simpler Super' changes came into effect on budget night 2006, taking the super industry by surprise," Ms McDonald said.

"The reporting mechanisms in place weren't able to be amended in time to accurately report contributions made before and after that key date.

"Don't simply accept the ATO has it right - unless you've exceeded the cap you will not attract the penalty tax. It is also important to know that the ATO has very little discretion in administering these penalties.

Ms McDonald said the industry needed to lobby the Government to review the level of the contribution caps, and the underlying sets of legislation governing superannuation contributions

"We need to be encouraging trustees to build up their retirement savings and the excess contributions tax does everything but this," she said.

"The halving of the concessional caps, along with the punitive excess contributions tax rate undermines the taxpayers' faith in superannuation."

"As SMSF specialists, we look after the administrative side of things for our clients so it's important we are across all of the changes made to superannuation law. We constantly review our client's accounts and flag issues such as if we think contributions are going to be outside limits.

"The reason why people have SMSFs is so they can have more control over their future retirement. For those who are ill advised or don't have professional assistance, these excess contribution caps can come as a rude shock.

"To avoid being penalised it is critical for trustees to appoint a qualified SMSF administrator to oversee their funds, this will ensure they are managing their funds correctly."