Incorrect withholding for super payments
Scenarios which may result in insufficient tax being withheld
- Scheduled system updates to increase tax rates do not take effect resulting in under-withholding of tax.
- Withholding on super death benefits may be calculated incorrectly resulting in the tax on the payment being understated and the beneficiary receiving more than entitled.
- You may be holding an incorrect date of birth resulting in an incorrect payment to a member.
If you under-withhold:
- you are not entitled to seek repayment of the amount from the member
- on recognising the error, you may suggest that the member agree to a higher level of withholding from later payments to make up the tax shortfall, but cannot insist upon this
- you may be subject to a penalty, but that would generally be waived for honest errors and cases that are disclosed voluntarily.
The action you need to take will be determined when the error is identified – in the same financial year or a later financial year.
Under-withholding – same financial year
Example:
On 1 September 2015 Kerrie was advised of the death of a member and calculated a non-dependant superannuation lump sum benefit payment. The payment consisted entirely of a taxable component – taxed element.
In October 2015 Kerrie became aware that she had withheld insufficient tax resulting in an increased net payment to the non-dependant beneficiary.
Reporting the error
If the error is identified within the same financial year, Kerrie will need to ensure that the correct amounts and codes are shown on the PAYG payment summary issued to the member for the income year. She should show the amount of tax that was withheld, without adjustment.
End of exampleUnder-withholding – previous financial year
If you under-withheld in a previous financial year and only discover the error in a later year, you are not entitled to seek repayment of the amount from the member.
Example:
On 15 April 2015 Jake received a request for a superannuation benefit to be made to a member. The member received the payment in June 2015. It was later identified that due to a system issue, the payment did not include the temporary budget repair levy of 2% as the income stream payment was above $180,000. Jake will need to lodge an amendment to the ATO for 2014–15.
Reporting the error:
Jake should issue an amended PAYG payment summary to the member at the time the error is discovered.
The amended PAYG payment summary should detail the amounts the member should have received in the relevant financial year and correct codes. Jake does not need to adjust the amount of tax withheld on the amended PAYG payment summary.
If the error occurred in more than one year, Jake should issue amended PAYG payment summaries for each relevant financial year.
End of exampleScenarios which may result in too much tax being withheld
- The member accesses their super due to a terminal medical condition where no tax is applicable. Errors may occur during processing of the claim resulting in tax being withheld in error.
- Super accounts with a balance of less than $200 may be taxed when no tax applies resulting in the member receiving less benefit than entitled and tax withheld in error.
- Withholding on super death benefits may be calculated incorrectly.
If you over-withhold:
- consider the amount owed to the member
- report it to the ATO.
The action you need to take will be determined by when the over-withholding is identified – in the same financial year or a later financial year.
Over-withholding – same financial year
Example 1:
On 1 September 2015 Priya was advised of the death of a member and calculated a non-dependant superannuation lump sum benefit payment totalling $4,200. The payment consisted entirely of a taxable component – taxed element. An amount of $714 was withheld from the benefit payment and Priya provided a PAYG payment summary to the beneficiary.
In October 2015 Priya found out the beneficiary to whom the payment was made was a dependant of the member. Consequently, the applicable rate of withholding for the payment was nil and the beneficiary's entitlement had been reduced by an amount of $714. Priya needs to refund the amount of $714 to the beneficiary.
Priya will also need to:
- prepare a new payment summary
- show the beneficiary and payer information as it was on the original payment summary
- enter the new dollar amount or payment type code
- mark the 'amending a payment summary' box
- lodge the completed payment summary
- give a copy to the payee.
Reporting the incorrect amount
If the error is identified within the same financial year, Priya will need to ensure that the correct amounts and codes are shown on the PAYG payment summary issued to the member for the income year. Priya should show the amount of tax that was withheld, without adjustment.
The refunded amount should be recovered by reducing a future withholding payment to us.
End of example
Example 2:
A super fund received an application for a departing Australia Superannuation Payment (DASP) for a member via the DASP online application system on 20 September 2017. The DASP was paid to the member on 17 October 2017 and was accompanied with a DASP payment summary. The appropriate tax rate, and amount of tax withheld from the DASP, was worked out by the fund having regard to the visa information that was provided to the ATO by the Department of Home Affairs and included in the application.
The member contacted the fund on 12 December 2017 as they thought the amount of tax withheld from their DASP was too high. The tax withheld was more than 50% of the total payment, which indicated that the DASP working holiday maker HM (WHM) tax rate was applied. The member advised the fund that the DASP WHM tax rate should not have been applied to the payment as they had never held a WHM visa. It was discovered that the Department of Home Affairs had, as the result of a system issue, inadvertently advised the ATO that the member had held a WHM visa.
The error was identified by the member during the DASP online application process, and the member had contacted the Department of Home Affairs for a Certificate of Immigration Status to correct the error. In this case, the member should not have submitted the application via DASP online as per the on-screen information; however they did so by mistake, and forgot to keep the super fund informed.
The fund checked their records and established that they had received the Certification of Immigration Status after they received the application, confirming that the member had not held a WHM visa.
In this case, there was an amount of tax withheld in ‘error‘, as the incorrect DASP tax rate was used.
As the fund became aware of the error before the end of the financial year in which the amount of tax was withheld, the fund must refund the amount that was incorrectly withheld (the over-withholding amount) to the member. This would also be the case had the member actually requested a refund in the same financial year (as opposed to the fund becoming aware of the error).
Once the correction and refund has been made, the fund will need to:
- advise the member by letter of the correct information
- keep a copy of the letter for their records.
The refunded amount should be recovered by reducing a future withholding payment to us.
Report the correct details in the annual report as an original payment summary, if you made an amendment to a payment summary before sending the annual report file.
End of exampleOver-withholding – previous financial year
Example 1:
On 1 May 2015 a member advised Jeremy that they had just ceased employment with an employer who had made contributions to the fund. A review of the member’s account showed total preserved benefits of $199. The member requested this amount be paid to them directly, and on 6 May 2015 Jeremy made a lump sum payment to the member totalling $155.22.
On 20 July 2015 Jeremy was alerted to a system issue that had resulted in the incorrect rate of withholding being applied against the member's preserved benefits where the total is less than $200. The system issue caused the member's payment to be reduced by an amount of $43.78 in the 2015 financial year. As a PAYG payment summary has been issued to the member in respect of the payment, Jeremy needs to prepare a new payment summary.
Jeremy will also need to:
- show the beneficiary and payer information as it was on the original payment summary
- enter the new dollar amount or payment type code
- mark the ‘amending a payment summary statement’ box
- not change the tax withheld amount
- lodge the completed payment summary
- give a copy to the payee.
Reporting to the ATO
Jeremy should issue an amended PAYG payment summary to the member at the time when an error has been discovered.
In the amended PAYG payment summary, Jeremy should detail the amounts the member should have received in the relevant financial year. He should not adjust the amount of tax withheld on the amended payment summary.
If the error occurred in more than one year, you should issue amended payment summaries for each relevant financial year.
End of example
Example 2:
A super fund received a DASP application for a member on 10 January 2018. The DASP was paid to the member on 30 January 2018, accompanied with a DASP payment summary.
The member contacted the fund on 5 July 2018 to advise that the amount of tax withheld from their DASP was incorrect. The amount of tax withheld stated on the DASP payment summary reflected the 38% tax rate. They advised that they had checked the ATO's website, and since the budget repair levy was removed from 1 July 2017, the taxed element of the taxable component of the DASP should be taxed at 35%, instead of 38%. The fund reviewed their calculation and established that an error had been made in relation to the amount of tax withheld due to an issue in their system.
As the fund did not become aware of the error before the end of the financial year in which the amount of tax was withheld, the fund can advise the member to contact the ATO for a refund.
The fund advised the member to send a letter to the ATO with details explaining the circumstances, and include attached evidence of the over -withholding. The address for the member to send the letter is:
Australian Taxation Office
PO Box 1032
ALBURY NSW 2640
End of exampleSee also:
What you should do if you withhold an incorrect amount of tax for a member's super payments.