Date posted:
Police Super is aware of recent correspondence being sent to impacted members regarding excess contributions to super. The information below is to provide some further background and to help explain what the ATO is referring to.
Total Superannuation Balance
Your total super balance (TSB) is a way in which the Australian Tax Office can value the superannuation interests you hold in your combined super funds. It is calculated on a given date, usually 30 June (the end of the financial year).
The TSB is used to determine whether you are eligible for several super-related measures for the following financial year.
Some of these super-related measures set the limit for the total super balance as being equal to the general transfer balance cap ($1.7 million from 2021–22). Prior to 2021-22, the TSB cap was $1.6 million.
If a members TSB is at or above $1.7 million they are unable to make after-tax (non-concessional) contributions to super. These types of contributions are required to be made towards your Police Pension Scheme even if your TSB is at or above $1.7 million.
What happens if I have a TSB of $1.7 million or higher and I am required to make after tax contributions to my Police Super account?
You are still required to contribute towards your Police Pension. However, you will find that the Australian Tax Office will send you a letter advising that you have exceeded your non-concessional contributions cap. This letter will provide two options available to you.
Option 1 – Release the excess contributions and associated earnings from you super fund(s)
You can elect to release all your excess non-concessional contributions plus 85% of the associated earnings from your super funds.
If you do, the ATO will amend your income tax assessment to include:
- your associated earnings in your taxable income
- a non-refundable tax offset of 15% of the associated earnings.
Your taxable income may increase.
This could affect any income support payments, child support or Centrelink benefits.
Option 2 – Release no amount in relation to the excess and associated earnings and be assessed for excess non-concessional contributions tax.
If you elect to leave the excess non-concessional contributions in your super funds you will receive an excess non-concessional contributions tax assessment from the ATO. The excess amount is taxed at the highest marginal tax rate plus Medicare levy.
You can view examples and more information on the Australian Tax Office website - If you exceed your non-concessional contributions cap | Australian Taxation Office (ato.gov.au)
Example of a member that has reached the Total Superannuation Balance cap and has contributed after tax to super.
1 |
Total Super Balance at 30 June 2022 |
$1,701,000.00 |
2 |
Non-concessional contributions cap (The amount of after-tax money allowed to be paid into super) |
$0.00 (As the total super balance is equal to or exceeds $1.7million, this value is $0.00) |
3 |
Non-concessional contributions (The amount of after-tax money paid into super. Generally, the payments you make to Police Super) |
$5,000.00 |
4 |
Excess non-concessional contributions for this determination (The amount of after-tax contributions paid in above your cap – seen in row 2) |
$5,000.00 |
5 |
Excess non-concessional contributions tax (Only applicable if you select option 2). |
$2,350.00 (The $5,000 from row 4 taxed at 47%) |
6 |
Associated Earnings amount. (Interest that the ATO advises it earnt based on their associated earnings rate in column 8) |
$675.00 (Amount is calculated on a daily compounding basis for the length of the associated earnings period) |
7 |
Associated Earnings period. (The time they advise the money has been in super when it shouldn’t have been) |
1 July 2022 to 30 April 2023. |
8 |
Associated Earnings rate. (The rate of interest the ATO allocates to excess contributions) |
8.96% |
9 |
85% of associated Earnings amount. (Will be added to your taxable income and tax deducted at your applicable income tax rate) |
$573.75 |
10 |
Amount to be released from your super fund(s) (option 1) (This is the amount the ATO will receive from your super fund. They will return this money to you less any income tax payable on the value in row 9) |
$5,573.75 (Amount of after-tax money paid into super plus the 85% associated earnings amount) |
In the above scenario the member will receive a payment of $5,573.75 less any income tax on the $573.75.
For example, if the members income tax rate was 32% the member would receive $5,390.15. This is broken down below.
Amount to be released from super to the ATO |
$5,573.75 |
85% of associated earnings |
$573.75 |
Income tax rate |
32% |
Income tax payable |
$183.60 (573.75 X 32%) |
Amount returned to member |
$5,390.15 ($5,573.75 – $183.60) |
Transfer Balance Cap
The transfer balance cap is a federal government cap on the amount of money a member can invest in an income stream type superannuation account. These products include the Police Super pension and other super funds Income Stream/Allocated Pension products.
The Police Super Office will calculate the value of your capped defined benefit income stream i.e. police pension once it becomes payable to you. Increases as a result of CPI adjustments thereafter are not reportable, although any commutation lump sum taken becomes an ‘event’ and this is reportable which reduces the original Transfer Balance Cap accordingly.
The formula provided by the Commonwealth to Police Super for the calculation of the value of your pension at retirement is your
[fortnightly gross pension] divided by [14 (days in a pay fortnight)] multiplied by [365 (days)] multiplied by [16 (age factor – one age fits all!)].
This amount will be reported to you in your initial letter which advises of the pension and lump sum payments you have received.
Before 1 July 2021 the Transfer balance cap were capped at $1.6m, any amount above this may need to be transferred out of your income stream product to reduce the amount. Effective from 1 July 2021, the cap was increased and is now between $1.6m and $1.7m dependent on the individual’s finances. A financial planner/tax accountant is qualified to assist you with understanding how these caps may affect your individual circumstances and providing advice as to keeping within the cap and the impact they may have on contributing money to super.
Difference between the transfer balance cap and total superannuation balance
Your transfer balance cap and total superannuation balance are calculated differently and are not related.
The general transfer balance cap is a limit on the amount of superannuation that can be transferred into the retirement income phase.
A total superannuation balance is calculated at a particular time by adding together the value of all your superannuation interests less any structured settlements. It is relevant when working out your contribution caps and eligibility for the, co-contributions and tax offsets.
myGov
MyGov can advise of your vales for the Total Superannuation Balance and the Transfer Balance Cap (if retired).
You can log in to myGov and enter to the Australian Tax Office (ATO) page to view your balances. Once on the ATO page select super from the top banner and then Information and a list of options will populate. Two of which are Total superannuation balance and Transfer balance cap.