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Edited version of administratively binding advice
Authorisation Number: 1012431720079
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Subject: Non-concessional contributions
Question:
Will contributions made to a self-managed superannuation fund be non-concessional contributions?
Advice:
Yes
This advice applies for the following periods
Year ending 30 June 2013
The scheme commenced on
1 July 2012
Relevant facts
Your advice is based on the following facts:
You are under 65 years of age.
You are a member of a self-managed superannuation fund (the SMSF).
You advised that you rolled over your superannuation benefits to the SMSF.
Currently, the trustee of the SMSF is in the process of purchasing an asset for which additional funds are needed.
You propose to make personal (after tax) superannuation contributions to your SMSF in the relevant income year.
You are not intending to claim a tax deduction in respect of your personal superannuation contributions.
You advised that you haven't triggered the bring-forward provisions in either of the two prior income years.
You currently make salary sacrifice contributions with your employer.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 292-20(2)
Income Tax Assessment Act 1997 Section 292-25
Income Tax Assessment Act 1997 Subsection 292-25(2)
Income Tax Assessment Act 1997 Section 292-80.
Income Tax Assessment Act 1997 Section 292-85.
Income Tax Assessment Act 1997 Subsection 292-85(3).
Income Tax Assessment Act 1997 Section 292-410.
Superannuation (Excess Non-concessional Contributions Tax) Act 2007 Section 4.
Superannuation (Excess Non-concessional Contributions Tax) Act 2007 Section 5.
Reasons for decision
Summary
Your proposed personal superannuation contributions are classified as non-concessional contributions.
As you are under age 65 during the relevant income year you may make non-concessional contributions of up to $450,000 in the relevant income year without being liable for excess contributions tax.
However, if you make non-concessional contributions in excess of $150,000 you will trigger the bring-forward provisions.
Detailed Reasoning
Concessional contributions
Concessional contributions made to superannuation funds are subject to an annual cap. For the 2012-13 income year the annual concessional contributions cap is $25,000 (subsection 292-20(2) of the Income Tax Assessment Act 1997 (ITAA 1997)).
The concessional contributions cap is subject to indexation. If a person has more than one fund, all concessional contributions made to all their funds are added together and count towards the cap.
The amount of a person's concessional contributions for an income year is determined under section 292-25 of the ITAA 1997. Subsection 292-25(2) of the ITAA 1997 provides that unless specifically excluded, they include contributions made to a complying superannuation fund by or for a person in that year, which are included in the fund's assessable income. Most commonly, these will be:
· employer contributions (including contributions made under a salary sacrifice arrangement); and
· personal contributions claimed as a tax deduction by an individual.
Concessional contributions in excess of the concessional contributions cap are called excess concessional contributions. A person is taxed on the excess concessional contributions at a rate of 31.5%. In addition, the amount of any excess concessional contributions for an income year is counted towards the person's non-concessional contributions cap. The superannuation fund can be asked to release money to pay this excess contributions tax.
As noted in the facts, salary sacrifice contributions are made to a superannuation fund on your behalf every year. You will not be subject to excess concessional contributions provided your total concessional contributions do not exceed the concessional contributions cap in the relevant income year.
Non-concessional contributions cap
Non-concessional contributions made to a complying superannuation fund are also subject to an annual cap (subsection 292-85(2) of the ITAA 1997). The non-concessional contributions cap for the relevant income year is $150,000.
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.
A person will have a liability to pay excess non-concessional contributions tax at the rate of 46.5% if they have excess non-concessional contributions for an income year (subsection 292-80 of the ITAA 1997 and sections 4 and 5 of the Superannuation (Excess Non-concessional Contributions Tax) Act 2007). A person will be required to ask their superannuation fund to release an amount that is equal to the tax liability (section 292-410 of the ITAA 1997).
The bring-forward provisions
As a concession, to accommodate larger contributions, persons who are under age 65 at any time during an income year are able to 'bring forward' future entitlements equal to two years worth of non-concessional contributions. This means a person under age 65 in the relevant income year is able to contribute non-concessional contributions totalling $450,000 over three income years without exceeding their non-concessional contributions cap (subsections 292-85(3) and (4) of the ITAA 1997).
The bring-forward will be triggered automatically when contributions in excess of the annual non-concessional contributions cap are made in an income year by a person, who is under age 65 at any time in the year, where a bring-forward has not already commenced (subsection 292-85(3) of the ITAA 1997).
Once a bring-forward has been triggered, the two future years' entitlements are not indexed.
Proposed non-concessional contributions to be made in the relevant income year
As noted earlier, your non-concessional contributions cap is $150,000 for the relevant income year. You propose to make personal contributions to your SMSF in the relevant income year. You are not intending to claim this contribution as a deduction. Accordingly, this contribution is classified as non-concessional contributions.
If this contribution is the only non-concessional contribution you make in the relevant income year, you will not exceed your non-concessional cap and so not be subject to excess contributions tax on that contribution.
You are under 65 years of age and have not triggered the bring-forward provision since 1 July 2010. Therefore the bring-forward provisions will be available to you during the relevant income year.
In order to trigger the bring-forward provision in the relevant income year you need to contribute an amount in excess of the non-concessional contribution cap to your SMSF prior to 30 June 20XX.
In this scenario two future years' entitlements up to the bring-forward residual amount can be contributed in the two future income years without exceeding the non-concessional contributions caps for those income years.
If your contributions equal $450,000 in the relevant income year you will not exceed your non-concessional contributions cap. In this case, however, you will be unable to make further non-concessional contribution in the two future income years without exceeding your non-concessional contribution cap.
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