The SMSF regime is heavily regulated by the tax office and special care must be applied to make sure that you stay within the rules of making compliant contributions as the table below shows a summary of the different types of contributions that can be made into your SMSF.
Concessional contributions, sometimes known as ‘pre-tax’ contributions, are contributions made by or for a member that are included in the assessable income of your super fund and normally qualify as a tax deduction for the payer of the contribution. The super 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 (9.50% from 1 July 2014), and any additional voluntary employer contributions
- Salary sacrifice contributions
- Personal contributions made by a self-employed member for which the member claims a tax deduction.
*Concessional contributions made on behalf of an individual whose adjusted taxable income is greater than $300,000 are taxed at 30%, rather than 15%.
Non-concessional contributions, sometimes known as ‘after tax’ contributions, are contributions made by or for a member that are not included in your SMSF’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
There are also some contributions that are not included in your SMSF’s assessable income and are further specifically excluded from being counted in your non-concessional contribution cap. These include:
- Small business CGT Cap contributions
- Payments that relate to structured settlements or personal injury
How age affects 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.
- Age 65-74: employer and personal contributions can be accepted provided the member meets the work test. To satisfy the work test, he/she must work for at least 40 hours during any consecutive 30 day period in the financial year. He/she only needs to meet this test ‘once’ in a financial year. Unpaid work doesn’t count; they must be gainfully employed. Once the member turns 70 years, spouse contributions can’t be accepted.
- 75 and over: prior to 1/7/13, only mandated employer contributions under an industrial award or agreement could be made. From 1/7/13, this has been broadened to include normal superannuation guarantee contributions.
Concessional and non-concessional contributions are capped as follows:
- Concessional contributions $30,000 per financial year;
- Non-concessional contributions $180,000 per financial year.
If you are aged 49 years or over on 30 June 2014, a higher concessional contributions cap of $35,000 applies.
If a member exceeds their concessional contributions cap, the excess concessional contributions are included in the member’s assessable income and taxed at their marginal tax rate. They can either pay any tax liability personally or withdraw the money from their super fund. A small interest charge is also payable.
Excess non-concessional contributions are currently taxed at 47.0% although the Government has announced a proposal which would allow the excess to be withdrawn from the super fund along with any associated earnings, with only the associated earnings taxed at the member’s marginal tax rate.
Non-concessional ‘bring forward’ rule
If you’re over 50 and under 65 years old at any time during the financial year, you can potentially bring forward the next two years of non-concessional contributions. This means that you can contribute up to three times the non-concessional cap (or $540,000) at once.
The ‘bring-forward’ is automatically triggered when your non-concessional contributions exceed $180,000 in a particular year. Once this happens, your non-concessional contributions over the next two years cannot exceed $540,000 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 commonly known as ‘contribution splitting’.
Firstly, your spouse must be less than 55 years of age, or if aged between 55 to 64 years, not retired. If your spouse is 65 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’, meaning 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
- Your concessional contributions cap for that financial year
Applications to split contributions should be retained by the trustees.
Small business CGT cap
Contributions made following the disposal of qualifying small business assets are exempt from your non-concessional contributions cap, up to a lifetime limit of $1.355 million. This limit is for the 2014/15 financial year and is indexed annually. Only contributions arising from certain capital gains can be excluded from the non-concessional contributions cap.
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 lives with the person on a genuine domestic basis, whether or not legally married, including same-sex couples.
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 for low-income earners up to $1,000 (on a $1 for $2 basis) of personal super contributions. Personal super contributions are from an individual’s after-tax dollars and do not include salary sacrifice contributions, contributions for which you have been allowed a tax deduction or spouse contributions. The maximum co-contribution is $500. The co-contribution will apply if:
- You made a personal superannuation contribution of up to $1,000 (on a $1 for $2 dollar basis)
- Your total income was less than $34,488
- At least 10% of your income comes from eligible employment-related activities
- You are less than 71 years old at the end of the income year
If your income is between $34,488 and $49,488, you are still eligible for a co-contribution, however, this is reduced by 3.333 cents for every dollar your income exceeds $34,488. For example, if your income was $44,488 and you made a personal contribution of at least $334, the co-contribution would be $167.
In specie contributions
As a trustee, you can generally accept personal and employer contributions in the form of an asset other than cash, which is called an ‘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 the fund doesn’t breach the ‘related party rules’ which govern the acquisition of assets from related parties.
Accepting rollovers into your SMSF
You can accept a rollover 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.
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 an additional tax of 32.0%.
Allocating SMSF contributions
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.