There are broadly two types of contributions that can be made to your SMSF – concessional contributions and non-concessional contributions.
Concessional contributions, sometimes known as ‘pre-tax’ contributions, are contributions made by or for a member of fund that are included in the assessable income of your Fund. The Fund pays tax at 15% on these contributions. Concessional contributions are employer contributions and those personal contributions for which a member will claim a tax deduction and include:
- Employer super guarantee contributions and additional voluntary employer contributions;
- Salary sacrifice contributions;
- Personal contributions made by a self-employed member for which the member claims a tax deduction; and
- An allocation from a reserve to a member of an assessable component.
Non-concessional contributions, sometimes known as ‘after tax’ contributions, are contributions made by or for a member of a fund that are not included in your fund’s assessable income. These include:
- Personal contributions that you are not eligible to claim a tax deduction for;
- Spouse contributions;
- Contributions in excess of your concessional contributions cap; and
- An allocation from a reserve of a non-assessable amount; and
There are also some contributions that are not included in your fund’s assessable income and are further specifically excluded from being counted in your non-concessional contribution cap. These include:
- Small business CGT Cap contributions; and
- Payments that relate to structured settlements or personal injury.
How age affects SMSF contributions
The age of each member determines whether contributions can be made and the maximum amount your fund can accept.
Under 65: Contributions can be accepted regardless of the member’s working status – no work test is needed.
Age 65-74: Employer and personal contributions can be accepted, provided you meet the work test in each year a contribution is made. To satisfy the work test, you must work for at least 40 hours during a consecutive 30-day period in the financial year. You need to be gainfully” employed, which means unpaid work doesn’t count. Spouse contributions can’t be accepted after you turn 70.
75 and over: Only mandated employer contributions under an industrial award or agreement can be made. No other contributions can be made. The Government has announced it will change this rule to allow normal employer superannuation guarantee contributions, with effect from 1 July 2013.
There is a provision that allows the trustee to accept a contribution for a member for a previous period of employment, provided you are satisfied that the member was eligible for the contribution to be made. For example, if the member has turned 65 and ceased employment, you could still accept a contribution relating to a past period of employment from their employer.
Concessional and non-concessional contributions are capped as follows:
Concessional contributions: $25,000
Non-concessional contributions: $150,000
The Government has indicated that these caps will remain in place during the 2012/13 and 2013/14 financial years. In 2011/12 and earlier years, those aged 50 or over were eligible for a higher concessional contribution cap of $50,000.
Any concessional contributions in excess of the cap are taxed at an additional rate of 31.5% over and above any tax levied on the contribution. While the member is liable to pay this excess tax, the member can request that the fund pay the tax by making a withdrawal from the member’s account by completing and signing a ‘voluntary release authority’.
Excess concessional contributions also count towards a member’s non-concessional contributions cap. Excess non-concessional contributions are taxed at 46.5%. Potentially, a member who exceeds both their concessional and non-concessional contribution caps could end up paying up to 93% tax on the amount by which they exceed their concessional contribution cap.
Non-concessional ‘bring forward’ rule
If you’re under 65 years old at any time during the financial year, you can potentially bring forward the next two years of contributions. This means that you can contribute up to three times the non-concessional cap (or $450,000) at once, or over the next three years.
The ‘bring-forward’ is automatically triggered when your non-concessional contributions exceed $150,000 in a particular year. Once this happens, your non-concessional contributions over the next two years cannot exceed $450,000 less the contributions you made in the year the bring-forward was triggered.
A member can transfer super contributions made to their account during a year to their spouse’s super account, subject to the following rules and limits. This is more commonly known as contribution splitting.
Firstly, your spouse must be less than 55 years old, or if aged between 55 to 64 years, not retired. If your spouse is 65 years old or older, you are not eligible to ‘contribution split’. There is no test on your age.
The contributions that can be split are your ‘concessional contributions’ – contributions made by your employer, salary sacrifice contributions or if self employed, personal contributions where you are eligible to claim a tax deduction. You are eligible to split up to the lesser of:
- 85% of your concessional contributions; and
- Your concessional contributions cap for that financial year.
For example, if your spouse is aged 54 years and your concessional contributions during a financial year are $20,000, you could “split/transfer” up to $17,000 to your spouse’s superannuation account.
Applications to split contributions should be retained by the trustees (that is, as part of the fund’s records).
In specie contributions
As a trustee, you can generally accept personal and employer contributions in the form of an asset other than cash – the ‘in specie’ contribution. For example, your employer could make the contribution in shares or in options. If you accept ‘in specie’ contributions, you need to be extremely careful in relation the ‘related party rules’ – the fund can’t breach the acquisition of assets from related party rules.
Small business CGT cap
Contributions made following the disposal of qualifying small business assets are exempt from your non-concessional contribution cap, up to a lifetime limit of $1.255 million. This limit is for the 2012/13 financial year, and is indexed annually. Only contributions arising from certain capital gains can be excluded from the non-concessional contributions cap. These contributions are:
- Up to $500,000 of capital gains that are disregarded under the small business CGT retirement exemption;
- The capital proceeds from the disposal of assets that qualify for the small business 15 year exemption;
- The capital proceeds from the disposal of assets that would have qualified for the small business 15 year exemption but do not because there was no capital gain, or the asset was a pre-CGT asset or the asset was disposed of before the 15 year ownership due to your permanent incapacity.
The effect of this concession is that if you are a small business owner, you can potentially contribute up to $1.255m under the CGT cap and $450,000 under your non-concessional cap (depending on your age) in one year into super. A member must notify the Trustee if this type of contribution is being made.
Making spouse contributions
You can make a contribution on behalf of your spouse. Any such contribution counts against your spouse’s non-concessional contribution cap. Your spouse must be eligible to receive that contribution (under 65, or if aged from 65 to 69, satisfy the work test). A spouse includes anyone who, although not legally married, lives with the person on a genuine domestic basis as “husband and wife”, including same sex couples.
Additionally, if you make a spouse contribution, you may be eligible for a tax offset of up to $540. The maximum offset applies if your spouse contribution is $3,000 or more, and your spouse’s assessable income (plus reportable fringe benefits and reportable employer superannuation) is less than $10,800.
The Commonwealth Government will match up to $1,000 of your personal super contributions in 2011/12, provided you qualify under certain income tests. Personal super contributions are from your after tax dollars – they do not include salary sacrifice contributions, personal contributions for which you have been allowed a tax deduction, or spouse contributions.
In 2011/12, the maximum co-contribution is $1,000. The co-contribution will apply if:
- You made a personal superannuation contribution of up to $1,000 (on a dollar for dollar basis);
- Your total income was less than $31,920;
- At least 10% of your income comes from eligible employment related activities; and
- You are less than 71 years old at the end of the income year.
If your income is between $31,920 and $61,920, you are still eligible for a co-contribution, however this is reduced by 3.333 cents for every dollar your income exceeds $31,920. For example, if your income was $41,920, your co-contribution would be $667.
Income for this test is your assessable income for the financial year plus reportable fringe benefits for the financial year plus reportable employer super contributions less your allowable business deductions.
In 2012/13, the maximum co-contribution will be reduced to $500 and will be matched on a $1 for $2 basis (that is, to get the maximum $500, you will need to make a personal contribution of $1,000). Your income will need to be below $31,920. If your income is between $31,920 and $46,920, you will still be eligible for a co-contribution, however this is reduced by 3.333 cents for every dollar your income exceeds $31,920.
You can accept a rollover superannuation benefit from a complying super fund provided your SMSF has elected to be regulated and obtained an ABN. There are no age restrictions on rollovers. You are generally not required to tax rollovers coming into the fund, unless the rollover contains an untaxed component (which may happen if the rollover is coming from an untaxed superannuation fund).
Contributions made without a TFN
You should ensure that you have obtained the Tax File Number (TFN) for each of your members. If a concessional contribution is made on behalf of a member where the fund has not obtained the member’s TFN, this will be classified as a ‘No-TFN contribution’ and will be subject to additional tax of 31.5%.
Allocating SMSF contributions
Finally, you should be aware that as a trustee, you are required to allocate contributions to members’ accounts within 28 days after the end of the month in which they were received.