Another real-life example from GAIL FREEMAN’s accounting practice. This is a sponsored post. 

Mel said “Gail I am one of the many people whose super had to be recalculated because of errors in the payroll area in my department. I am absolutely distraught. 

When I retired I was advised by PSS that my total super balance (TSB) would be approximately $1,400,000 when the maximum transfer balance cap (TBC) was $1,600,000. However when I look on MyGov now it is shown as $1,900,000.

I’m totally confused and what is worse I keep getting requests to pay more tax to the ATO. So all the extra money they paid me is being swallowed up in tax and I can’t understand why.”

I said “Mel I am as puzzled as you are right now but I’m working through it so we can actually see what has happened and what you can do about it. Looking at the letter that you received soon after your retirement your TBC is shown as $1,400,000. As you said you were one of the people whose super was recalculated because of employer calculation errors. I note that you were paid a lump sum of $200,000 from which was deducted member contributions that you would have paid had the super been correctly calculated when it should have been of $25,000 and tax of $80,000 leaving you with a lump sum of about $95,000. I can see that this was paid into your bank during the 2023 financial year.”

Mel said “yes Gail that is what a letter that I have received from the ATO says. But the thing that is puzzling me is why they’re now asking me for tax of $80,000.”

I said “when this recalculation was done and your lump sum recalculated your TSB was also recalculated. There is no record that I have access to from the ATO that it ever was $1,400,000. If the original letter from PSS did not exist there is no record that it ever was this figure. Which all adds to the confusion.”

What has happened is that the increase in your pension and the lump sum you received have pushed your TSB up to $1,900,000 which is in excess of your TBC of $1,600,000. This was alluded to in correspondence that I’ve seen and I’m sure that if you talk to your colleagues some of them will have the same problem. You have been charged an additional $80,000 in tax of which $25,000 relates to adjustments in 2018, there is a penalty of approximately $5000 and the balance relates to notional earnings that have been calculated because you did not take funds out of your super to reduce your TSB. As you were totally unable to comply with this requirement it does seem to be very poor form that you have to pay this amount. I am sure that had you known this in 2017 you would have reduced your TSB accordingly. I can also see that from your perspective it looks as if you have received a lump sum and it has all gone in tax.”

I do think it is totally inappropriate that the ATO has charged you $5000 interest on an amount that you could not foresee at the time you retired. It also seems unreasonable that you’re having to pay tax because of your employer’s mistake. The approximately $50,000 is correct in accordance with the law. However, it seems quite wrong that your lump sum is being taxed for an error that you did not make.”

Mel said “Gail now I understand what has happened it was not at all clear from the correspondence.

I am really grateful to you for following it through for me and I thank you.”

If you have received a super recalculation which has resulted in large tax bills and you are unsure as to the accuracy contact the experts at Gail Freeman & Co Pty Ltd on 02 6295 2844, email info@gailfreeman.com.au or visit gailfreeman.com.au

Disclaimer
This column contains general advice, please do not rely on it. If you require specific advice on this topic please contact Gail Freeman or your professional adviser. Authorised Representative of Lifespan Financial Planning Pty Ltd AFS Lic No. 229892.