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Edited version of your written advice
Authorisation Number: 1051226087642
Date of advice: 18 May 2017
Ruling
Subject: Non-concessional contributions- bring forward provisions
Question
Are you eligible to trigger the 'bring forward' provision under subsection 292-85(4) of the Income Tax Assessment Act 1997 (ITAA 1997) where a contribution in excess of the non-concessional cap is made in the income year that you turn 65 but after you reach age 65?
Advice
Yes
This advice applies for the following period:
Income year ending 30 June 2017
The arrangement commences on:
1 July 2016
Relevant facts and circumstances
Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice.
You are a member of a complying superannuation fund (the Fund).
You received an inheritance and intend to make a non-concessional contribution to the Fund in the 2016-17 income year.
You turned 65 in the 2016-17 income year and will make a non-concessional contribution to the Fund after you have reached age 65.
You worked part time during the 2016-17 income year and satisfy the 'work test' per regulation 7.04 of the Superannuation (Industry) Supervision Regulations 1994 (SISR).
You have not triggered the bring-forward provisions in any previous years.
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 Subsection 292-85(4).
Superannuation Industry (Supervision) Regulations 1994 Subregulation 1.03(1).
Superannuation Industry (Supervision) Regulations 1994 Subregulation 7.04(1).
Reasons for decision
Summary
You were under age 65 at the start of the 2016-17 income year but will have reached age 65 when you make non-concessional contributions to the fund.
You will be gainfully employed in the 2016-17 income year and therefore satisfy the work test.
Non-concessional contributions made to the Fund in excess of the non-concessional contributions cap will trigger the bring-forward provisions of your two future year entitlements for the 2017-18 and 2018-19 income years.
You will be able to contribute a total amount of $540,000 in the 2016-17 income year.
Detailed reasoning
Non-concessional contributions made to a complying superannuation fund are subject to an annual cap as per subsection 292-85(2) of the ITAA 1997. The non-concessional contributions cap for the 2016-17 income year is $180,000.
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).
A taxpayer will be taxed on non-concessional contributions over the cap at the rate of 46.5% as per subsection 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
Under subsection 292-85(4) of the ITAA 1997 a person can bring forward future entitlements to two years' worth of non-concessional contributions if they meet the requirements of subsection 292-85(3). Thus, a person will be able to contribute non-concessional contributions totalling $540,000 over three financial years without exceeding their non-concessional contributions cap.
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, unless paragraph 292-85(3)(c) applies, a person who makes non-concessional contributions that exceed their non-concessional contributions cap during the income year in which they turn 65 years of age, would trigger the bring-forward provisions and their non-concessional cap would be calculated in accordance with subsection 292-85(4) of the ITAA 1997.
Therefore a person who is aged 64 at the beginning of the 2016-17 income year may trigger the bring forward provisions by making a contribution in excess of $180,000 and no more than $540,000 in the 2016-17 income year, even though they are age 65 at the time of making the contribution.
The work test
However, subregulation 7.04 of the SISR limits the circumstances in which a superannuation fund may accept contributions. A superannuation fund may only accept a contribution from a member over the age of 65 if the fund member satisfies the 'work test'. The work test requires that, for the financial year in which a contribution is made, the fund member must have been gainfully employed on at least a part time basis. To satisfy these requirements a fund member must have worked for at least 40 hours during a consecutive 30 day period for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.
To meet the definition of 'gainfully employed' an individual must be engaged in a genuine arrangement for the purpose of earning an income. Thus, the work test is not met if an individual is engaged as a volunteer, is doing unpaid work or is managing their own investments.
In this case, you are under age 65 at the start of the 2016-17 income year (the first year) and will satisfy the work test. You intend to make non-concessional contributions in excess of $180,000 and no more than $540,000. This will result in your non-concessional contributions for the 2016-17 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 2016-17 income year without breaching your non-concessional contributions cap.
Changes to non-concessional contributions caps
From 1 July 2017, the annual non-concessional contributions cap will be reduced from $180,000 to $100,000. Consequently, if you trigger the bring forward provisions in the 2016-17 income year and do not contribute a total amount of $540,000 by 30 June 2017, the maximum bring forward amount will be $380,000.
The work test will continue to apply to individuals aged over 65 years.
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