Defined benefit funds
In a defined benefit fund, your benefits do not depend solely on contributions and earnings. Your benefits may depend on factors such as your years of service or final average salary (on retirement or termination of employment).
Defined benefit contributions represent the annual increase in your interest in a defined benefit fund, based on the benefit you're expected to receive when you leave the fund.
How you calculate contributions to defined benefit funds depends on whether you make them to:
Contact your super fund to find out if it is a funded or unfunded defined benefit fund, or a hybrid super fund.
Funded defined benefit funds
Special rules apply to calculate the amount of your concessional contributions to a funded defined benefit fund.
Your concessional contributions include your notional taxed contributions.
Notional taxed contributions
Notional taxed contributions are when your employer contributes to your fund in general, rather than specifically to you as a member. Your fund calculates notional taxed contributions using a formula specified in the legislation. This generally represents the contributions your employer would make if you were a member of an accumulation fund.
Special rules (grandfathering) for notional taxed contributions
Special rules (grandfathering) apply to notional taxed contributions to a funded defined benefit fund, as you can still exceed the concessional contributions cap even though you can't choose to reduce your notional taxed contributions.
You qualify for grandfathering provisions if your notional taxed contributions exceed your concessional contributions cap. In this case, your fund will treat your notional taxed contributions as being equal to your concessional contributions cap.
It's your fund's responsibility to determine if you're eligible for grandfathering and report this to us.
These grandfathering provisions don't apply to other employer contributions made to your defined benefit fund or to other funds you have.
Eligibility for grandfathering
To be eligible for grandfathering, you must have:
- for the 2007–08 and 2008–09 financial years, been a member of an eligible defined benefit fund on 5 September 2006 (the day the original contribution caps were first announced)
- for the 2009–10 financial year onwards, been a member of an eligible defined benefit fund on 12 May 2009 (the reduction in the concessional contribution caps)
- not had a substantial change to the rules that apply to your benefit since that date
- not had a non-arm's length change to your super salary of more than 50% in a year or 75% in three years since that date
- notional taxed contributions in a financial year more than the concessional contributions cap
- met other conditions specified in the regulations.
The grandfathering arrangement may not apply if your fund makes changes to its benefit rules. However, certain minor changes may still allow the grandfathering arrangement to continue.
You may still be entitled to use grandfathering arrangements if you transfer from a defined benefit fund to another defined benefit fund and continue to meet the requirements.
This information above only provides general guidance. Ask your super fund for more information.
The grandfathering provisions don't apply to a super interest in a constitutionally protected fund.
Unfunded defined benefit funds
In an unfunded defined benefit fund your benefits are not financed until your employer pays you.
Unfunded defined benefit funds include the Commonwealth Superannuation Scheme (CSS), Public Superannuation Scheme (PSS), Defence Force Retirement and Death Benefits (DFRDB) scheme and other funds for government employees. Many unfunded super funds also have funded components, defined as partially unfunded.
Unfunded defined benefit contributions are the amounts by which your defined benefit contributions exceed your notional taxed contributions if you're a member of an unfunded or partially unfunded defined benefit fund.
Notional taxed contributions are when your employer contributes to your fund in general, rather than specifically to you as a member.
Your fund calculates notional taxed contributions using a formula specified in the legislation. This generally represents the contributions your employer would make if you were a member of an accumulation fund.
Concessional contributions
On their own, concessional contributions to an unfunded defined benefit fund cannot result in you exceeding your concessional contributions cap.
Concessional contributions to an unfunded defined benefit fund count towards the cap. However, the cap is only exceeded if your combined concessional contributions to an unfunded defined benefit fund and another type of fund exceed the cap. In this case, the amount of your contributions to the other type of fund are treated as excess contributions to the extent you exceed the cap.
Where you have a defined benefit interest, the amount of your concessional contributions for a financial year is the sum of the following three amounts:
- contributions and amounts to accumulation interests, where those contributions would ordinarily be concessional contributions under the law
- notional taxed contributions for each of your defined benefit interests
- the amount by which your defined benefit contributions exceeds your notional taxed contributions.
This means there may be tax consequences for your other concessional contributions.
Non-concessional contributions
Non-concessional contributions to an unfunded defined benefit fund count towards your non-concessional contributions cap.
Some unfunded defined benefit funds require you to contribute a percentage of your salary to your super. These contributions come from after-tax income, so they are non-concessional contributions.
Hybrid super funds
Hybrid funds are super funds that provide a combination of accumulation benefits and defined benefits.
Hybrid funds can provide:
- a defined benefit – determined by a formula based on factors such as your salary, length of contributory service and age at exit
- an accumulation benefit – based on your own contributions plus earnings on those contributions.
Some super funds, including the CSS and PSS, have both unfunded and funded portions.
If your super fund has an unfunded and funded portion, only the unfunded portion has a zero concessional contributions amount. Any funded portion may include concessional contributions that count towards your concessional contributions cap. For example, the productivity contributions paid by employers to the CSS and PSS are concessional contributions.
Constitutionally protected funds
Constitutionally protected funds (CPFs) are untaxed super funds that don't pay income tax on contributions or earnings they receive.
Some state governments operate CPFs for their employees, such as West State Super and Gold State Super in Western Australia and Triple S in South Australia.
Under the Australian Constitution, the Federal Government can't tax state government assets, so different arrangements apply to concessional contributions to CPFs.
Funds created for members of the judiciary are also often CPFs. Contact your super fund to find out if it is a CPF.
Concessional contributions
On their own, concessional contributions to a CPF cannot result in you exceeding your concessional contributions cap.
Concessional contributions to a CPF count towards the cap. However, the cap is only exceeded if your combined concessional contributions to a CPF and another type of fund that isn't an unfunded defined benefit fund exceed the cap. In this case, the amount of your contributions to the other type of fund are treated as excess contributions to the extent you exceed the cap.
This means there may be tax consequences for your other concessional contributions.
Non-concessional contributions
If you're a CPF member, non-concessional contributions count towards your non-concessional contributions cap.
Contributing to non-deductible funds
You cannot claim a deduction for personal super contributions made to certain types of funds, including:
- Commonwealth public sector superannuation schemes in which you have a defined benefit interest
- constitutionally protected funds or other untaxed funds that would not include your contribution in its assessable income
- super funds that notified us before the start of the income year that they elected to treat all member contributions to the:
- super fund as non-deductible, or
- defined benefit interest within the fund as non-deductible.
If you' are unsure if you’re a member of one of these funds, contact your super fund. They will be able to advise you if they can accept deductible personal super contributions.
Alternatively, if you are a member of one of the above funds and wish to make personal contributions that are deductible, you can open another super account.
More information
We recommend you check with:
- your fund to review your arrangements with CPFs, unfunded defined benefit funds and other super funds
- your employer about your
- salary sacrifice agreements
- amounts being paid to CPFs or other funds
- other contributions to CPFs and defined benefit funds.
For technical information, see:
- LCR 2016/11 Superannuation reform: concessional contributions - defined benefit interests and constitutionally protected funds
- Super Guidance Note 2017/11 Changes to concessional contributions - constitutionally protected and unfunded defined benefit funds