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Subject: Concessional contributions cap
Question
1. Can your client, who is between the ages of 50 and 65, contribute up to $450,000 as a non-concessional contribution for the 2011-12 income year?
2. Can your client, who is between the ages of 50 and 65,contribute up to $50,000 as a concessional contribution for the 2011-12 income year?
Advice
1. Yes, provided that your client has not already triggered the bring forward provision in the previous two years.
2. Yes, provided that your client also satisfies all the conditions in section 290-150 of the Income Tax Assessment Act 1997 (ITAA 1997).
This ruling applies for the following period:
2011-12 income year
The scheme commences on:
1 July 2011
Relevant facts and circumstances
Your client, who is between the ages of 50 and 65, is the only member of a self-managed superannuation fund (the Fund). The Fund is currently in pension phase.
Your client wishes to contribute up to $XXX,000 as a non-concessional contribution and $XX,000 as a concessional contribution in the 20XX-XX income year.
Your client wishes to convert the Fund back to accumulation phase to make the contributions and then return the Fund back into pension phase. The Fund's Trust Deed specifically allows this.
The assets of the Fund are unsegregated.
The type of pension currently being paid from the Fund is account based.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 290-20(2)
Income Tax Assessment Act 1997 Section 290-150
Income Tax Assessment Act 1997 Subsection 290-150(2)
Income Tax Assessment Act 1997 Section 290-155
Income Tax Assessment Act 1997 Section 290-160
Income Tax Assessment Act 1997 Section 290-165
Income Tax Assessment Act 1997 Section 290-170
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)
Income Tax (Transitional Provisions) Act 1997 Subsection 290-20(2)
Reasons for decision
Summary of decision
Your client may contribute up to $XXX,000 as a non-concessional contribution for the 2011-12 income year provided that they have not already triggered the bring forward in the previous two years.
Your client may also contribute up to $50,000 as a concessional contribution for the 2011-12 income year income year provided that they satisfy all the necessary legislative conditions.
Detailed reasoning
Limits on concessional contributions
From 1 July 2007, concessional contributions made to superannuation funds are subject to an annual cap. For the 2011-12 income year the annual cap is $25,000.
The concessional contributions cap will be indexed to upward movements of average weekly ordinary time earnings (AWOTE) in $5,000 increments (subsection 292-20(2) of the ITAA 1997).
Concessional contributions include employer contributions, salary sacrifice contributions and personal contributions claimed as a tax deduction by a self-employed person.
A person will be taxed on concessional contributions over the cap at a rate of 31.5% (section 292-15 of the ITAA 1997 and sections 4 and 5 of the Superannuation (Excess Concessional Contributions Tax) Act 2007).
Between 1 July 2007 and 30 June 2012, a transitional concessional contributions cap will apply for people aged 50 or over. For the 2011-12 income year the annual cap is $50,000 (subsection 292-20(2) of the Income Tax (Transitional Provisions) Act 1997).
If a person has more than one fund, all concessional contributions made to all their funds are added together and count towards the cap.
Amounts in excess of the concessional contributions cap are also counted towards the non-concessional contributions cap.
It should be noted that under subsection 290-150(2) of the ITAA 1997 a person must satisfy all the conditions in sections 290-155, 290-160, 290-165 and 290-170 before they can claim a deduction in respect of personal contributions made in the relevant income year.
Limits on non-concessional contributions
From 1 July 2007, non-concessional contributions made by a person to a complying superannuation fund are subject to an annual cap (subsection 292-85(2) of the ITAA 1997). For the 2009-10 income year onwards the annual cap is always six times the concessional contributions cap. Therefore, for the 2011-12 income year the annual cap is $150,000.
Non-concessional contributions include (among others):
· personal contributions for which an income tax deduction is not claimed; and
· contributions a person's spouse makes to the person's superannuation fund account (spouse contributions).
A person will be taxed on non-concessional contributions over the cap at the rate of 46.5% (section 292-80 of the ITAA 1997 and sections 4 and 5 of the Superannuation (Excess Non-concessional Contributions Tax) Act 2007). The 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).
As noted earlier, any concessional contributions in excess of the concessional contributions cap for the relevant income year will also be counted towards the non-concessional contributions cap.
The bring-forward provision
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. This means a person under age 65 will be 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).
Where a bring forward has been triggered, the two future years' entitlements are not indexed.
In this case as your client is between the ages of 50 and 65, your client can make contributions up to $450,000 of non-concessional contributions (which is three times the annual cap amount of $150,000) during the 2011-12 income year provided that they have not triggered the bring forward in the previous two years. It should be noted that further non-concessional contributions cannot be made until 1 July 2014 onwards, otherwise an excess contributions tax liability will arise for the amount exceeding the cap.