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Edited version of private ruling
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Ruling
Subject: Non–concessional contributions and the bring–forward provisions
Question
Will the 'bring-forward' provisions under subsection 292-85(4) of the Income Tax Assessment Act 1997 (ITAA 1997) be triggered where you make non-concessional contributions to your self-managed superannuation fund before you turn age 65?
Answer
Yes.
This ruling applies for the following period:
Year ending 30 June 2011.
The scheme commences on:
1 July 2010.
Relevant facts and circumstances
You are under age 65 at all times during the financial year.
During the relevant financial year, you made personal non-concessional contributions of more than $150,000 to your self-managed superannuation fund (SMSF).
You intend to make a non-concessional contribution of more than $150,000 to your SMSF in the financial year.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 292-85,
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).
Reasons for decision
Summary
Where you make non-concessional contributions to a self-managed superannuation fund (SMSF) in the financial year, and your contributions exceed the non-concessional contributions cap of $150,000, you are eligible to use the bring-forward provisions, as you will be under 65 years of age at all times during this income year.
A previous calculation of the cap under the bring-forward provisions that applied to the non-concessional contributions you made in the relevant financial year, will not affect the non-concessional contributions cap applying to your proposed contribution.
Detailed reasoning
Non-concessional contributions cap
From 1 July 2007, non-concessional contributions made by a person to a complying superannuation fund are subject to an annual cap. The annual cap is specified under subsection 292-85(2) of the ITAA 1997.
The cap for non-concessional contributions made in the financial year is $150,000.
Contributions in excess of the non-concessional contributions cap will be taxed at the rate of 46.5% unless the bring-forward provisions apply. The member will be required to ask their superannuation fund to release an amount that is equal to the tax liability.
As a concession, to accommodate larger contributions, persons under age 65 in a financial year are able to bring forward future entitlements to up to two years' worth of non-concessional contributions.
The bring-forward provisions
For a person who is aged 50 years or over on 30 June 2011, their non-concessional contributions cap for the 2010-11 financial year remains at $150,000.
However, subsections 292-85(3) and (4) of the ITAA 1997 ('the bring-forward provisions') provides 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 where a bring-forward has not already commenced, a person who is under age 65 who makes non-concessional contributions during the financial 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).
Non-concessional contributions made in the 2007-08 financial year
During the relevant financial year, you made non-concessional contributions of more than $150,000 to your SMSF. You were under 65 years of age for the entire financial year.
Further, as this financial year is the bring-forward provisions' first year of operation for these contributions, there has not been any previous calculation of the non-concessional contributions cap specifically in relation to these contributions.
Accordingly, the contributions you made in the relevant financial year exceeded the non-concessional contributions cap of $150,000 in that financial year.
As a result the bring-forward provisions were triggered in this financial year, and applied to the relevant financial years.
Your proposed non-concessional contribution in the 2010-11 financial year
You intend to make a non-concessional contribution to your SMSF in the financial year. At the time of your proposed contribution you will be under age 65. Your proposed contribution will exceed the non-concessional contributions cap of $150,000 for this financial year.
As the final year of your previous bring-forward of the non-concessional contributions cap was the financial year, the 2010-11 financial year will be first year of operation of a new bring-forward provisions' period.
Therefore, if you make your proposed contribution during the financial year, your contribution will exceed the non-concessional contributions cap of $150,000 for this financial year, thus triggering the bring-forward provisions. As a result the bring-forward provisions will apply to your contribution. Therefore the non-concessional contributions cap for your contribution will be calculated as $450,000 under subsection 292-85(4) of the ITAA 1997. It follows, therefore, that the contribution will not exceed this cap for this financial year.
The bring-forward provisions in respect of your proposed contribution will apply to the relevant financial years. Provided you make your contribution in the first year when you are under age 65, the bring-forward cap of $450,000 will apply to your contribution because the bring-forward will be triggered before you turn age 65.
Conclusion
The bring-forward provisions will be triggered where you make non-concessional contributions to your SMSF before you turn age 65 during the financial year. Accordingly, if you make your proposed contribution during the financial year, your non-concessional contributions cap for this financial year will be $450,000. Consequently, your proposed contribution will not exceed your non-concessional contributions cap in the financial year.