Super members caught in debt letter debacle

An administrative error that's impacted members of a major government superannuation fund has demonstrated the importance of knowing your contributions caps and ensuring the tax office has your most current information.

State Super is working with the Australian Taxation Office after discovering an error by its administrator Mercer had caused members to receive excess contribution debt notices as it appeared they had breached the concessional contributions cap of $27,500.

According to a notice on the fund's website, an error in the reporting of member contributions to the tax office in May saw excess contribution debts mistakenly created against some members. These members then received letters from the ATO advising them of the debt.

The fund would not confirm how many members were impacted by the error.

In a further statement, a State Super spokesperson said: "A one-off system error has been made by State Super's administrator, Mercer, with the reporting of member contributions to the ATO.

"The issue was identified when members queried ATO notices they were receiving regarding excess contribution debts. It was an outcome of a system transition and affected only the reporting process to the ATO, not member accounts."

State Super said it is working closely with the ATO to rectify the issue, and Mercer has since reported the correct information to the tax office, with all affected members to receive updated letters in the weeks ahead.

"The system error has been fully addressed," the spokesperson added.

Mercer also serves as administrator to several other super funds, including AvSuper, CareSuper and its own Mercer Super.

Mercer said the system error was specific to State Super and no other super fund's members were impacted.

HLB Mann Judd NSW superannuation director Andrew Yee says the biggest lesson in an instance like this is one that may unfortunately be learned too late. That is, ensuring you've kept your information with the ATO up-to-date, especially with your current mailing address.

"The ATO generally still sends a physical letter for this type of thing and if they don't have your current address on file, that letter may go to an old address and you'll likely never know about it, and so you miss the deadline," he says.

The letter from the ATO prompts the person to make a decision - remove the excess concessional contributions within a stated timeframe or do nothing and have them counted as non-concessional contributions. In all cases, the excess concessional contributions amount will be taxed at the person's marginal tax rate, less a 15% tax offset.

If a person does nothing and they have already used up their non-concessional cap limit of $110,000 a year, or $330,000 brought forward over three years, then they will be deemed to have exceeded their non-concessional contributions cap. They will then receive another letter from the ATO, telling them they will be taxed on the notional earnings of the excess amount at their marginal tax rate less a 15% tax offset.

"They will also be asked whether they want to remove the excess contributions or leave them in there. If they leave them in there or do nothing, an additional tax of 45% on the excess amount is imposed by the ATO," Yee explains.

"There can be some very bad consequences if you don't get it right."

Finally, Yee says don't run straight to the ATO if you believe you've received a letter in error.

"You can contact the ATO to clarify the figures, but they won't be able to make the correction unless your contributions are re-reported by your super fund which, like in the case of State Super, may not actually know an error has been made," he notes.

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