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  • 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 by 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 example

    Under-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 example

    Scenarios 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

    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

    Over-withholding – previous financial year

    Example

    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

    See also:

    Last modified: 31 Oct 2017QC 53812