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Advice

Subject: Non-concessional contributions cap - Bring forward provisions

Question

Can a member of the fund make personal contributions up to $450,000 in the 2011-12 income year without exceeding the non-concessional contributions cap?

Answer: Yes

This ruling applies for the following period

Year ending 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

A member (the Member) of the Fund intends to make a non-concessional contribution to the Fund.

The Member has not already triggered the bring-forward provision.

During the 2011-12 income year the Member will be under 65 years of age.

The Member has not been involved in any paid work in recent years, nor intends to be in the future.

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) Act 1993

Superannuation Industry (Supervision) Regulations 1994

Summary of decision

During the 2011-12 income year the Member will be under 65 years of age. The Member has not already triggered the bring-forward provision and intends to make non-concessional contributions. Therefore, the Member will be able to trigger the bring-forward provisions by contributing an amount in excess of $150,000 and up to $450,000 in the 2011-12 income year.

The Fund will be able to accept contributions that are made in respect of the Member prior to her turning 65 years of age.

You have advised that the Member has not been involved in any paid work in recent years, nor intends to be in the future. Therefore, if the contribution is made when the Member is over 65 but under 70 years of age, the Fund cannot accept the contribution as the Member has not been gainfully employed.

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:

· your non-concessional contributions for the first year exceed the amount mentioned in subsection (2) for that year; and

· you are under 65 years at any time in the first year; and

· 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 at any time during the income year who makes non-concessional contributions 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) of the ITAA 1997.

In this case, during the 2011-12 (the first year) income year the Member will be under 65 years of age. The Member has not already triggered the bring forward provision and intends to make non-concessional contributions. Therefore, the Member will be eligible for and trigger the bring-forward provisions in the 2011-12 income year. The Member will trigger the bring-forward provision when they make a non-concessional contribution in excess of $150,000 and up to $450,000.

This means two future years' entitlements up to the bring forward residual amount can be made in the 2012-13 and 2013-14 income years without breaching the non-concessional contributions caps for those 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 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.

In this case the Member intends to make a non-concessional contribution to the Fund in the 2011-12 income year.

The Fund will be able to accept contributions that are made in respect of the Member prior to her turning 65 years of age.

You have advised that the Member has not been involved in any paid work in recent years, nor intends to be in the future. Therefore, if the contribution was to be made when the Member is over 65 but under 70 years of age, the Fund could not accept the contribution under SISA and SISR for the 2011-12 income year as the Member has not been gainfully employed.