Employers also at risk on excess contributions
The Federal Government's approach to excess contributions, combined with the practices within some financial institutions, may be placing not only super fund members at risk but also employers who make contributions on their behalf, according to specialist financial services lawyer Noel Davis.
Davis has referenced the recent hefty 78 per cent excess contributions bill imposed on a director of book store chain Dymocks to highlight what he believes are key deficiencies in the current regime.
These include the practice of some financial institutions and superannuation funds of receiving contributions in a clearing account and only transferring the contributions into the superannuation fund bank account at a later date.
He said it was this practice in particular that was causing members to be taxed on excessive contributions and was causing employers and individuals to miss out on tax deductions for the contributions.
Davis said this occurred when contributions had been paid towards the end of a financial year but not transferred to the superannuation fund's bank account - and then credited to the members' accounts in the fund in the next financial year.
"When added to other contributions in the latter year, it sometimes gives rise to excessive contributions which are adversely taxed," he said.
Referencing the recent Administrative Appeal Tribunal dealing with the Dymocks director, he said it had very significant tax implications for all employers who pay contributions for their employees into clearing accounts, as well as for their auditors.
"Under the tax legislation, a contribution is only tax deductible in an income year in which it is 'made' to a superannuation fund," he said.
"If a contribution paid into a clearing account towards the end of a financial year is not transferred from the clearing account to the superannuation fund's account until the beginning of the next financial year, the employer is not entitled to a tax deduction for the contribution in the year in which it was paid by the employer."
Davis said this meant that employers, large and small, who paid contributions to clearing accounts would therefore need to check whether each such contribution got transferred from the clearing account before the end of the financial year, in order to avoid incorrectly claiming deductions.
The Shadow Assistant Treasurer, Senator Mathias Cormann, has blamed the Government for the problem and undertaken the Coalition will address the issue if it gains office at this year's election.
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