I put too much into Super - what should I do?

I put too much into Super – what should I do?

This means it would be taxed at your personal tax rate less a 15 per cent deduction, as the contribution would have been included in the superfund’s taxable income.

This gives you two choices in terms of excess.

The first is to recover 85 percent of the excess from the superfund. Why 85 percent is reimbursed is due to the obligation to pay 15 percent tax on reduced contributions. In order to recover this amount you must notify the ATO who will then approach your fund with a Power of Attorney to pay you the amount.

While a second option seems to be to leave the excess in the fund and have it count towards your non-concessionary contribution cap, it’s not the best option.

That’s because, Colley says, once you have more than $1.7 million in Super, you can’t make non-discounted contributions to Super.

Any amount that is considered an excessive non-discounted amount has two options for how it will be treated.

You could have this returned from the fund plus an 85 percent interest penalty, with that penalty included in your taxable income and taxed at your personal tax rate less 15 percent.

Or worse, you can leave the excess non-concessional contribution in the fund, where it’s taxed at 47 percent.

Since you’ve already paid personal tax rates on the excess concessionary contribution, there seems little point in then counting it against your non-concessionary contribution cap and paying more tax at a penalty rate, Colley says.

Question: I moved to Australia from the UK three years ago to see if I liked the idea of ​​living here. I have decided to stay and am wondering what the transfer of my retirement savings is all about here? I like the idea of ​​a self-managed fund, but will it be easier to transfer this to a public fund or an SMSF? Grant.

A: It may be possible to obtain a transfer of your UK retirement savings to an Australian pension fund without incurring adverse UK transfer charges if the Australian fund is recognized by Her Majesty’s Revenue & Customs (HMRC) – the UK tax authority – as a Qualifying Recognized Overseas Pension Scheme (QROPS).

Under current UK pension rules, a foreign fund is only eligible for QROPS status if its current rules preclude the member from being paid UK pension monies before the age of 55, says William Fettes, a senior associate at DBA Lawyers in Melbourne .

The usual payment rules that apply to Australian super funds do not apply to QROPS. These may allow a member to access benefits before the age of 55 for financial hardship, compassionate causes, and temporary disability, as well as the $10,000 COVID-19 special payments.

Australian funds are therefore required to work with special age-based membership restrictions that apply to QROPS status, preventing access to Super prior to age 55 unless the member was permanently disabled for health reasons prior to that age.

It is best to seek advice from an expert in this area as it is a complex subject. Alastair Grant

One method of accomplishing this, Fettes said, is to establish an SMSF with a special deed of trust containing appropriate restrictions, or otherwise amend the deed for an existing SMSF.

This allows the SMSF to obtain QROPS status and UK pension funds can be transferred free of UK tax and UK criteria such as a lifetime allowance cap (currently £1,073,100 – $1,911,138). You must also be an Australian tax resident at the time of the transfer and for five consecutive UK tax years thereafter.

Although there used to be several Australian private or mutual funds offering QROPS services, there are not many providers in this market. This means you’ll have to see if you can find a non-SMSF supplier as it seems many use SMSFs with appropriately drafted QROPS compliant documents. You must also consider the application of Australian tax legislation and applicable contribution caps.

In general, a transfer from a qualifying UK pension scheme will be recognized as a transfer from a Foreign Superannuation Fund (FSF) for Australian tax purposes.

This means that the transfer is subject to Australian income tax on that part of the lump sum known as ‘Applicable Fund Income’ (AFE).

Typically, AFE represents the fund’s growth from the date you became Australian tax resident. This amount will then be subject to tax in Australia unless the transfer is made within six months of residence or cessation of foreign employment, which would not be the case for you as you have been here for three years.

Whilst the starting point for AFE is your marginal tax rate, if you complete a written election under Section 30580 of the Income Tax Assessment Act 1997 it may be taxable in an Australian super fund at the usual concessional rate of 15 per cent.

Fettes recommends that you seek advice from an expert in this field as it is a complex subject.

In order to make an effective choice, it is important that no amount remains in the overseas fund after the transfer and that the appropriate paperwork is completed before filing your personal tax return for the financial year of the transfer.

The non-AFE component of the lump sum that is transferred to the Australian fund generally counts as a non-discounted or after-tax contribution subject to your contribution cap.

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