In good news for high earners who exceed their annual superannuation contribution cap, from 1 July (last year) the ATO will no longer slug you with a penalty. Although, you’ll still be required to pay the top up tax on your excessive contributions according to your marginal tax rate.
Salary increases and payment of incentives or bonuses can increase your annual income, to which your employer adds 10.5% super (from 1 July, this year) or you may be among the mining and resources executives who enjoy more generous employer super (up to 13%). For you, your annual contribution cap could be well and truly blown.
It’s reasonably easy for high earning executives to exceed their annual superannuation cap, as most payroll departments automatically pay super without considering an individual’s full circumstances.
For example, if you have salary sacrifice arrangements in place, you receive a salary increase or earn an incentive/bonus that bumps up your annual earnings and with it, your employer’s super contribution, you could easily and significantly exceed your contribution cap.
The annual concessional (before tax) contribution cap is $27,500 so if you’re an executive earning $275,000 plus 10.5% super, your employer would have contributed $28,875 to your super fund (which means you’ve exceeded your cap by $1,375).
From 1 July 2021, you’ll still need to pay tax on the excess amount (in this example, the excess is $1,375). The tax would be at your usual marginal tax rate, which is currently 45% (plus the 2% Medicare Levy) for those who earn over $180,000 pa, less the 15% super contributions tax that would have already been paid on these contributions by your super fund.
However, you won’t need to pay the excess concessional contribution charge, which previously reflected a penalty rate on the additional tax payable on the amount you exceeded your concessional contribution cap.
If you’re in this league of high earnings, chances are your super balance is considerable or growing rapidly.
It’s important to be aware of the raft of other super rules that may affect you and your super balance, and how these may tie to your long term financial independence. However, more importantly, you need to understand how your superannuation is being managed in context of your overall financial plan, and that should include having growth, tax, asset protection and estate planning strategies in place.
Simply allowing your significant contributions and equally significant super balance to languish rather than taking an ‘advised’ management approach could very likely result in you forfeiting considerable wealth at retirement.
Poorly performing or ‘un-advised’ super accounts often translate to poor returns for superannuation account holders. I’ve written previously about a 2021 Australian Study that found the value of ‘advised’ versus ‘non-advised’ financial decision making were on average 5.2% better on investment portfolios. [1]
‘Advised’ super is a key component of effective financial planning and includes proactively managed investment strategies within the super environment. An advised approach strives to grow your retirement wealth according to your needs and in alignment with your investment risk tolerance.
Importantly, your superannuation needs to be considered in your estate planning as superannuation does not automatically form part of the wishes of your Will, as it is controlled by the Fund’s Trustees.
How your superannuation is managed upon your passing needs to be planned not just in terms of distribution to beneficiaries but in terms of tax.
When your superannuation is considered part of, rather than separate to, your financial plan, all these matters can be considered and appropriate strategies and actions agreed upon and implemented.
Next steps…
Check your annual superannuation contributions to make sure they are what you expect. Then check your super account to ensure your contributions reflect that amount. If they don’t, contact your employer.
Review your super fund beneficiaries. If you haven’t nominated beneficiaries, attend to this as soon as possible. If you have, but your circumstances have changed (e.g. marriage or divorce) you may need to update them.
Superannuation can be complex, and it doesn’t help that legislation changes fairly regularly. May I invite you to contact me to discuss your superannuation strategy and your goals for achieving personal prosperity.
Please contact James Marshall on +61 (0) 7 3007 2000 or email contact@resourcesunearthed.com.au
Resources Unearthed is a solutions hub that provides integrated financial, legal, property, accounting and business advisory services for executives, professionals and business owners in the mining and resources sectors.
[1] 2021 Value of an Adviser Report – Russell Investments
Stratus Financial Group and its advisers are Authorised Representatives of Fortnum Private Wealth ABN 54 139 889 535 AFSL 357306. This advice is general and does not take into account your objectives, financial situation or needs. You should not act on it without first obtaining professional financial advice specific to your circumstances.
*Please note: For advice and services relating to this matter that are not offered under the Fortnum Private Wealth AFSL, in accordance with our collaborative advice model, when required, such matters are referred to appropriately qualified professionals.
