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Subject: Non-concessional contributions and the bring-forward provisions
Question
Can you make further personal contributions of up to $450,000 after 1 July 2013 without exceeding the non-concessional contributions cap?
Advice:
Yes
This advice applies for the following periods
Year ending 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
The scheme commenced on
1 July 2012
Relevant facts
You are currently under 65 years of age.
During the 2009-10 income year, you made a voluntary personal non-concessional contribution to a complying superannuation fund.
You propose to make further personal contributions of up to $450,000 to a superannuation fund prior to you turning 65 years of age.
You intend that this contribution will comprise:
· an in specie contribution of your publicly listed Bank shares, and
· the balance in cash.
You have not yet decided which superannuation fund you would like to make the personal contributions. The superannuation fund to be selected will be a complying superannuation fund.
You will turn 65 years of age in the 2013-14 income year.
Shortly after making the proposed non-concessional contribution, and prior to you turning 65 years of age, you would like to commence receiving a pension from your superannuation fund.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 292-80.
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).
Income Tax Assessment Act 1997 Section 292-410.
Superannuation (Excess Non-concessional Contributions Tax) Act 2007 Section 4.
Superannuation (Excess Non-concessional Contributions Tax) Act 2007 Section 5.
Superannuation Industry (Supervision) Regulations 1994 Subregulation 1.03(1).
Superannuation Industry (Supervision) Regulations 1994 Subregulation 7.01(3).
Reasons for decision
Summary
As you have made non-concessional contributions of $450,000 to a superannuation fund in the 2009-10 income year, you have triggered the bring-forward provision.
You will be able to contribute a further $450,000 utilising the bring-forward provision in the 2012-13 or 2013-14 income year, without breaching the non-concessional contributions cap.
However, for the superannuation fund to be allowed to accept your contributions after your 65th birthday you must satisfy the work test.
Detailed Reasoning
Non-concessional contributions cap
Non-concessional contributions made to a complying superannuation fund are subject to an indexed annual cap (subsection 292-85(2) of the Income Tax Assessment Act 1997 (ITAA 1997)). For the 2011-12 and 2012-13 income years, the non-concessional contributions 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 their superannuation fund account.
A taxpayer will have a liability to pay excess non-concessional contributions tax at the rate of 46.5% if they have excess non-concessional contributions for an income year (subsection 292-80 of the ITAA 1997 and sections 4 and 5 of the Superannuation (Excess Non-concessional Contributions Tax) Act 2007). The taxpayer 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).
The bring-forward provisions
As a concession, to accommodate larger contributions, persons who are under age 65 at any time during an income year are able to 'bring forward' future entitlements equal to two years worth of non-concessional contributions. This means a person under age 65 in the 2011-12 and 2012-13 income years is 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).
Once a bring-forward has been triggered, the two future years' entitlements are not indexed.
Non-concessional contributions made in the 2009-10 income year
During the 2009-10 income year, you made a non-concessional contribution of $450,000 to a superannuation fund which resulted in the contribution exceeding the non-concessional contributions cap of $150,000 for that income year.
As you were under age 65 for the entire income year and the bring-forward under subsection 292-85(3) of the ITAA 1997 had not already commenced, this contribution automatically triggered the bring-forward.
Consequently, you were unable to make further non-concessional contribution for the 2010-11 and 2011-12 income years without exceeding your non-concessional contributions cap.
Proposed non-concessional contributions to be made in the 2012-13 or 2013-14 income years
You propose to make a personal contribution totalling up to $450,000 (utilising the bring forward provision) during the 2012-13 and/or the 2013-14 income years.
As noted earlier, your non-concessional contributions cap is $150,000 for the 2012-13 income year.
Both the concessional contributions cap and the non-concessional contributions cap for the 2013-14 income year have yet to be determined through indexation, which is in line with average weekly ordinary time earnings (AWOTE), in increments of $5,000. The new indexed amounts of these annual caps for an income year are generally made available each February.
Consequently, it is possible that the upper amount you may be able to contribute to the Fund between 1 July 2013 and before you turn 65 years of age without exceeding the non-concessional contributions cap, utilising the bring forward provision, could be greater than $450,000.
Under subsection 292-85(3), a person can contribute up to $450,000 (subject to any indexation increase) utilising the bring forward provision at any time during the income year in which you turn 65 years of age. In your case, this means any time up until 30 June 2014.
However, there are restrictions that apply to persons 65 years of age or over making personal superannuation contributions. For the fund to accept any contributions you make after you turn 65 years of age you will need to satisfy the work test.
In other words, you must satisfy the work test in order to make any contributions after 28 September 2013.
'Work test'
Under subregulation 7.01(3) of the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) there are no conditions required to be met in order for a superannuation fund to accept contributions from a member who is under age 65.
However, where the member is between age 65 and age 70, they must be gainfully employed on at least a part-time basis during the income year in order for a superannuation fund to be able to accept contributions from that member. To meet this requirement, the member must be gainfully employed for a least 40 hours in a period of not more than 30 consecutive days in that income year. This is generally referred to as the 'work test'.
'Gainfully employed' means employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment (subregulation 1.03(1) of the SIS Regulations). The concept of 'gain or reward' envisages receipt of remuneration such as salary or wages, business income, bonuses, commissions, fees or gratuities, in return for personal exertion. It does not encompass a person who is only receiving passive income (e.g. trust distributions, dividends) or a person who does 'volunteer' work.