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Advice

Subject: Non-concessional contributions cap

Question:

Are you able to contribute your superannuation monies back into the same superannuation fund before you reach age 65 using the bring-forward provisions?

Answer:

Yes

This ruling applies for the following period

30 June 2013

The scheme commenced on

1 July 2012

Relevant facts

Your advice is based on the following facts.

You retired several years ago.

You are a member of a complying superannuation fund (the Fund).

Currently, you have around $400,000 in the Fund. Your superannuation benefits comprise of a tax-free component and a taxable component.

You have no spouse and your children are non-dependant beneficiaries.

You will turn 65 years of age in the 2013-14 income year so if you want to contribute to superannuation after you turn 65 years of age you must satisfy the work test.

You will make a non-concessional contribution (the contributed amount) to your industry superannuation fund (the industry fund) in the 2011-12 income year.

Your total non-concessional contributions for the 2011-12 income year will be the contributed amount. This is first year you will have made a non-concessional contribution.

You intend to withdraw your entire superannuation benefits from the Fund as a lump sum. The lump sum will be made to you directly.

You will then contribute those monies to your industry fund in the 2012-13 income year before you turn 65 years of age.

Your total non-concessional contributions for the 2012-13 income year to your industry fund will therefore exceed the annual non-concessional cap of $150,000.

After all the contributions have been made you will commence an allocated pension from the same fund.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 292-80.

Income Tax Assessment Act 1997 Subsection 292-85(2).

Income Tax Assessment Act 1997 Subsection 292-85(3).

Income Tax Assessment Act 1997 Paragraph 292-85(3)(a).

Income Tax Assessment Act 1997 Paragraph 292-85(3)(b).

Income Tax Assessment Act 1997 Paragraph 292-85(3)(c).

Income Tax Assessment Act 1997 Subsection 292-85(4).

Superannuation Industry (Supervision) Act 1993

Superannuation Industry (Supervision) Regulations 1994.

Reasons for decision

Summary of decision

As you will be under age 65 during the 2012-13 income year, the bring-forward provisions will be available during that income year. In order to trigger the bring-forward provisions you will need to make non-concessional contributions in excess of $150,000 but not more than $450,000 in the 2012-13 income year.

Contributions in excess of the non-concessional contributions cap will attract tax at a rate of 46.5%.

Detailed reasoning

Non-concessional contributions cap

Non-concessional contributions include:

· personal contributions for which an income tax deduction is not claimed;

· contributions a person's spouse makes to their superannuation fund account; and

· transfers from foreign superannuation funds (excluding amounts included in the fund's assessable income).

Some contributions are specifically excluded from being non-concessional contributions. These include:

· a Government co-contribution;

· a contribution arising from a structured settlement or an order for personal injury;

· a contribution relating to some capital gains tax (CGT) small business concessions to the extent that it does not exceed the CGT cap amount ($1,000,000 indexed annually) when it is made; and

· a roll-over superannuation benefit.

Non-concessional contributions made to a complying superannuation fund will be subject to an annual cap [subsection 292-85(2) of the Income Tax Assessment Act 1997 (ITAA 1997)]. For a person who is 50 years of age or more their non-concessional contributions cap for the 2012-13 income year is $150,000.

A taxpayer will be taxed on non-concessional contributions over the cap at the rate of 46.5% (section 292-80 of the ITAA 1997).

As a concession, to accommodate larger contributions, taxpayers under age 65 in an income year are able to bring forward future entitlements to two years worth of non-concessional contributions.

The Bring-Forward Provisions

For a person who is 50 years of age or more their concessional contribution cap for the 2012-13 income year is $25,000 and their non-concessional contributions cap is $150,000.

However, subsections 292-85(3) and (4) of the ITAA 1997 ('the bring-forward provisions') provide that the non-concessional contributions cap is calculated differently if certain conditions are satisfied.

Subsection 292-85(3) of the ITAA 1997 states:

However, subsection (4) applies instead of subsection (2) in determining your non-concessional contributions cap for a financial year (the first year) if:

(a) your non-concessional contributions for the first year exceed the amount mentioned in subsection (2) for that year; and

(b) you are under 65 years at any time in the first year; and

(c) a previous operation of subsection (4) does not determine your non-concessional contributions cap for the first year.

Therefore, a person who is under 65 years of age who makes non-concessional contributions during the income year that exceed the non-concessional contributions cap specified under subsection 292-85(2) of the ITAA 1997, would trigger the bring-forward provisions and their non-concessional cap would be calculated in accordance with subsection 292-85(4).

The explanatory memorandum to Tax Laws Amendment (Simplified Superannuation) Bill 2006 (the EM) states the following in relation to the 'bring-forward' provisions:

1.85 As a concession, to accommodate larger contributions, people under age 65 in a financial year will be able to bring forward future entitlements to two years worth of non-concessional contributions. This means a person under age 65 will be able to contribute non-concessional contributions totalling $450,000 over three financial years without exceeding their non-concessional contributions cap. [Schedule 1, item 1, subsections 292-85(3) and (4)]

1.86 The bring forward will be triggered automatically when contributions in excess of the annual non-concessional contributions cap are made in a financial year by a person who is under age 65 at any time in the year where a bring forward has not already commenced. [Schedule 1, item 1, subsection 292-85(3)]

1.87 Where a bring forward has been triggered, the two future years' entitlements are not indexed. [Schedule 1, item 1, subsection 292-85(4)]

…

1.89 To simplify the operation of the non-concessional contributions cap, people aged 63 and 64 who take advantage of the bring forward will not be required to meet the work test in either of the following two financial years.

Therefore a person who is age 64 at the beginning of the 2012-13 income year and satisfies the work test (set out in the Superannuation Industry (Supervisions) Regulations 1994) may trigger the bring-forward provisions by making a non-concessional contribution in excess of $150,000 and up to $450,000 in the 2012-13 income year even though they are age 65 at the time of making the contribution.

However, for a person who is age 65 and over in the two future years, they are required to meet the work test before their superannuation fund can accept any further contributions up to the bring forward residual amount (if any).

In this case, you intend to make a non-concessional contribution to your industry superannuation fund in the 2011-12 income year. This contribution does not exceeding your non-concessional cap of $150,000 for the income year.

During the 2012-13 income year (the first year) when you intend to make the contribution you are under 65 years of age, have retired therefore you will not be required to meet the existing work test. You have not already triggered the bring-forward provision and intend to make non-concessional contributions in excess of $150,000 and up to $450,000. This will result in your non-concessional contributions for the 2012-13 income year exceeding the non-concessional contributions cap and, thus, triggering the bring-forward provisions.

This means your two future years' entitlements up to the bring- forward residual amount can be made in the 2012-13 income year without breaching the non-concessional contributions caps for the 2013-14 and 2014-15 income years.

Where a bring forward has been triggered, the two future years' entitlements are not indexed.

Taxation treatment on superannuation lump sum payment

Section 301-10 of the ITAA 1997 states:

If you are 60 years or over when you receive a superannuation benefit, the benefit is not assessable income and is not exempt income.

As you are over 60 years of age in the 2011-12 income year, the tax-free component and the taxable component - element taxed of your superannuation benefit is not assessable income and not exempt income.

No tax is payable by you and the payment is not included in your assessable income.

Conditions of Accepting Contributions

As a re-contribution strategy involves a contribution to a complying superannuation fund this raises the question as to whether such a contribution can be accepted by the fund trustee.

Please note, rules on whether a regulated superannuation fund is able to accept contributions are determined under the Superannuation Industry (Supervision) Act 1993 and the Superannuation Industry (Supervision) Regulations 1994 (SISR).

Item 1 of the table under subregulation 7.04(1) of the SISR states that if the member is under age 65, the fund may accept contributions made in respect of the member.

Tax Office response to re-contribution strategy under simplification

The Tax Office stated that a definitive view on the application of Part IVA to a re-contribution arrangement could only be made on a case by case basis, having regard to the specific facts in each case. Having said that, the Tax Office also noted that it was unlikely the Commissioner would apply Part IVA to a re-contribution arrangement given that a key policy thrust of the simpler super amendments was to provide individuals with greater concessions and more flexibility to manage their superannuation in retirement.

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