Scenarios when insufficient tax is withheld
Not enough tax may have been withheld in the following scenarios:
- System updates to increase tax rates didn’t apply as scheduled, 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 aren't entitled to seek repayment of the amount from the member
- on recognising the error within the same financial year, you may suggest the member agree to a higher level of withholding from later payments to make up the tax shortfall, but can't 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.
Example: under-withholding in same financial year
On 1 September 2024, a super fund is advised of the death of a member and calculates a non-dependant super lump sum benefit payment. The payment consists entirely of a taxable component – taxed element.
In October 2024, the fund becomes aware that it had withheld insufficient tax, resulting in an increased net payment to the non-dependant beneficiary.
The fund will need to ensure the correct amounts and codes are shown on the PAYG payment summary issued to the member for the income year. This must reflect the gross payments made and tax amounts withheld, without adjustment.
End of exampleScenarios when too much tax is withheld
Too much tax may have been withheld in the following scenarios:
- 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. This may result in the member receiving less benefit than entitled and tax withheld in error.
- Withholding on super death benefits may be calculated incorrectly.
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 in the same financial year
Example: over-withholding in same financial year
On 1 September 2024, a super fund is advised of the death of a member and calculates a non-dependant superannuation lump sum benefit payment totalling $4,200. The payment consists entirely of a taxable component – taxed element. An amount of $714 is withheld from the benefit payment and the fund provides a PAYG payment summary – superannuation lump sum to the beneficiary.
In October 2024, the fund learns that the beneficiary was a dependant of the member. Consequently, the applicable rate of withholding for the payment is nil.
What the fund needs to do
The beneficiary's entitlement is reduced by an amount of $714. The fund needs to refund the amount of $714 to the beneficiary.
The refunded amount can be recovered from us by reducing a future withholding payment.
The fund will also need to:
- prepare a new PAYG payment summary – superannuation lump sum
- mark the 'amending a payment summary' box
- show the beneficiary and payer information as it was on the original payment summary
- enter the new dollar amount or payment type code
- send a copy of the payment summary amendment to the payee
- lodge the payment summary and annual report amendments to us.
Example: over-withholding in same financial year
A super fund receives an application for a departing Australia superannuation payment (DASP) for a member via the DASP online application system on 20 September 2024. The DASP is paid to the member on 17 October 2024 and is accompanied with a DASP payment summary. The appropriate tax rate, and amount of tax withheld from the DASP, is worked out by the fund having regard to the visa information that was provided to us by the Department of Home Affairs and included in the application.
The member contacts the fund on 12 December 2024 as they thought the amount of tax withheld from their DASP was too high. The tax withheld was 65% of the total payment, which indicates that the DASP working holiday maker (WHM) tax rate was applied. The member advises 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 is discovered that the Department of Home Affairs had, as the result of a system issue, inadvertently advised us that the member had held a WHM visa.
The error is 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 its records and established that it had received the Certification of Immigration Status after receiving the application, confirming that the member had not held a WHM visa.
In this case, there is an amount of tax withheld in error, as the incorrect DASP tax rate was used.
What the fund needs to do
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 (that is, the over-withholding amount) to the member.
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 can be recovered by reducing a future withholding payment to us. The fund reports the correct details in the payment summary annual report as an original payment summary, if an amendment was made to the payment summary before the annual report was sent to us.
End of exampleOver-withholding in a previous financial year
Example: over-withholding in previous financial year
On 1 May 2025, a member advises their super fund they've just ceased employment with an employer that had made contributions to the fund. A review of the member’s account shows total preserved benefits of $199. The member requests this amount be paid to them directly, and on 6 May 2025 the fund makes a lump sum payment to the member totalling $155.22.
On 20 July 2025, the fund is 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 2025 financial year.
The over-withheld amounts for the 2025 financial year can't be refunded to the member. Instead, the member will be entitled to a credit for the amounts withheld in their income tax return.
What the fund needs to do
As a PAYG payment summary has been issued to the member in respect of the payment, the fund needs to prepare a new payment summary.
The fund 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.
If the error occurred in more than one financial year, amended payment summaries are required for each year.
End of example