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Advice

Subject: Non-concessional contributions

Question

Will the 'bring forward' provision under subsection 295-85(4) of the Income Tax Assessment Act 1997 be triggered where a contribution in excess of the non-concessional cap is made in the 2011-12 income year when the taxpayer turns age 65?

Advice/Answer

Yes.

This ruling applies for the following period

Year ending 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

You and your spouse are selling a property.

You plan to deposit your share of the proceeds from the sale of the property in your superannuation fund as a non-concessional contribution.

You have made non-concessional contributions to superannuation this financial year in the 2011 financial year.

You will retire from work on in the 2010-11 income year.

You state that you will be doing some work during the 2011-12 income year and anticipate being able to meet the work test.

You are over 65 years of age.

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) Regulations 1994 Subregulation 1.03(1)

Superannuation Industry (Supervision) Regulations 1994 Subregulation 7.01(3)

Superannuation Industry (Supervision) Regulations 1994 Subregulation 7.04(1)

Reasons for decision

Summary of decision

As you will be under age 65 during the 2011-12 income year, the 'bring forward' provision will still be available during that income year. In order to trigger the 'bring forward' provision you will need to make non-concessional contributions in excess of $150,000 but not more than $450,000 in the 2011-12 income year.

If you intend to make the contributions after you turn age 65, you will need to ensure that the superannuation fund is able to accept the contributions. You can only make contributions if you meet the work test.

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 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 2011-12 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 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 transitional concessional contribution cap for the 2011-12 income year is $50,000, 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 I ndexed. [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 2011-12 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 contribution in excess of $150,000 and up to $450,000 in the 2011-12 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 are under age 65 sometime during the 2011-12 income year (the first year) and will satisfy the work test. You 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 2011-12 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 2011-12 income year without breaching the non-concessional contributions caps for the 2012-13 and 2013-14 income years.

Conditions of Accepting Contributions

Whether a regulated superannuation fund is able to accept contributions is determined under the Superannuation Industry (Supervision) Act 1993 (SISA) and the Superannuation Industry (Supervision) Regulations 1994 (SISR).

Subregulation 7.04(1) of the SISR deals with the acceptance of contributions by regulated superannuation funds. This subregulation states:

A regulated superannuation fund may accept contributions only in accordance with the following table and subregulations (2), (3), (4) and (6).

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.

Item 2 of the table states that if the member is not under age 65 but is under age 70, the fund may accept member contributions in respect of the member if the member has been gainfully employed on at least a part time basis during the financial year in which the contributions are made. This is known as the 'work test'.

Under subregulation 1.03(1) of the SISR 'gainfully employed' means:

employed or self employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.

The term 'part-time' is defined under subregulation 7.01(3) of the SISR as follows:

In this Part, a person is gainfully employed on a part-time basis during a financial year if the person was gainfully employed for at least 40 hours in a period of not more than 30 consecutive days in that financial year.

Therefore, a person who is between age 65 and 70, and is engaged in paid employment, for at least 40 hours in a period of 30 consecutive days in that income year, will meet the work test. This means that their superannuation fund can accept the contributions made by them after reaching age 65.