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Edited version of administratively binding advice
Authorisation Number: 1012385737042
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Subject: Non-concessional contributions
Question
Are you able to make non-concessional contributions of $450,000, before attaining the age of 65 in the 2013-14 financial year, without exceeding your non-concessional contributions cap for that financial year?
Advice
Yes.
This advice applies for the following period:
2013-14 income year
The arrangement commences on:
1 July 2013
Relevant facts and circumstances
Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice.
You are XX years old.
You made a total of $Y non-concessional contributions in the relevant financial year.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 292-75.
Income Tax Assessment Act 1997 section 292-80.
Income Tax Assessment Act 1997 section 292-85.
Income Tax Assessment Act 1997 section 292-90.
Superannuation Industry (Supervision) Regulations 1994 subregulation 1.03(1)
Administratively Binding Advice
The Taxation Administration Act 1953 (TAA), is the law that allows legally binding advice to be provided on certain laws administered by the Commissioner. Unfortunately, we are not able to provide a private ruling on an issue in relation to the non-concessional contributions cap contained in the provisions in Division 292 of the Income Tax Assessment Act 1997 (ITAA 1997), as the TAA does not allow advice to be provided in a legally binding form.
In the interests of sound administration, the Commissioner will however, provide administratively binding advice in relation to these laws and in response to the question you have raised.
Administratively binding advice is not legally binding on the Commissioner. When the time comes to assess liability to tax, the law as it then exists must be applied to the facts as established at that time. However, the ATO will stand by what is said in such advice and will not depart from it unless:
· there have been legislative changes since the advice was given
· a tribunal or court decision has affected our interpretation of the law since the advice was given, or
· for other reasons, the advice is no longer considered appropriate. For example, if the advice has been exploited in an abusive and unintended way.
Reasons for decision
Summary
You can contribute non-concessional contributions totalling $450,000 in the 2013-14 financial year, without exceeding your non-concessional contributions cap, as long as the total amount of $450,000 of non-concessional contributions are made in the first year, before you are 65 years old.
Furthermore, you will not be required to meet the 'work test' in respect of the $XX you intend to make, under the bring forward arrangements in either of the following two financial years.
If however, you bring forward the three years' entitlement but do not make the full contribution in the first year, you will have to meet the 'work test' in any later year that a contribution is made and you are no longer under 65.
Detailed reasoning
Non-concessional contributions
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 funds assessable income under section 295-200 of the ITAA 1997).
Non-concessional contributions made to a complying superannuation fund are subject to an annual cap. Non-concessional contributions in excess of the relevant cap amount for the financial year, are subject to excess non-concessional contributions tax at the rate of 46.5%.
As a concession, to accommodate larger contributions, individuals under 65 years in a financial year, are able to bring forward future entitlements to two years' worth of non-concessional contributions.
This means that a person under age 65, can currently contribute non-concessional contributions of up to $450,000 over three financial years, without exceeding their non-concessional contributions cap (subsections 292-85(3) and (4) of the ITAA 1997).
The bring forward provision will be triggered automatically when non-concessional contributions in excess of the annual cap are made in a financial year by an individual who is under age 65 at any time in the year, where a bring forward has not already commenced.
As stated in your correspondence, you made non-concessional contributions of $XX in the relevant financial year.
Subsection 292-85(2) of the Income Tax Assessment Act 1997 (ITAA 1997) states that a taxpayer's non-concessional contributions cap for the relevant financial year is $150,000.
As your total non-concessional contributions for the relevant financial year, exceed the non-concessional contributions cap for the financial year, the bring forward provision has been automatically triggered to allow you the additional two years' worth of non-concessional contributions (that is, a total of $450,000) to be made in the relevant financial year. The bring forward provision therefore applies for the 2011-2013 financial years.
You have raised the question as to whether you can make non-concessional contributions of $450,000 in the 2013-14 financial year, before reaching age 65, using the carry forward provision.
In answer to your question, you can contribute non-concessional contributions totalling $450,000 in the 2013-14 financial year, without exceeding your non-concessional contributions cap, as long as the total amount of $450,000 of non-concessional contributions are made in the first year, before you are 65 years old.
Furthermore, you will not be required to meet the 'work test' in respect of the $XX you intend to make, under the bring forward arrangements in either of the following two financial years.
Once you are 65 years old, you will have to satisfy the work test before your fund will be able to accept member contributions. Any additional non-concessional contributions you make in 2014-15, where you satisfy the work test, will be in excess of your non-concessional contributions cap and will result in a tax liability.
If however, you bring forward the three years' entitlement but do not make the full contribution in the first year, you will have to meet the 'work test' in any later year that a contribution is made and you are no longer under 65. The 'work test' requires an individual to show that they worked for at least 10 hours and less than 30 hours each week.
By way of background, whether a regulated superannuation fund is able to accept contributions is determined under the Superannuation Industry (Supervision) Act 1993 (SISA) and the corresponding Superannuation Industry Supervision Regulations 1994 (SISR).
SISR subregulation 7.04(1) deals with the acceptance of contributions by regulated superannuation funds. Under this provision, a regulated fund may accept employer and/or member contributions made by an individual who is not under 65, but is under 70, if the contributions made in respect of the member are mandated employer contributions, or if the member has been gainfully employed on at least a part-time basis during the financial year in which the contributions are made.
Whether an individual has been gainfully employed, is known as the 'work test'. Generally, subregulation 1.03(1) of the SISR defines 'gainfully employed' on a part-time basis to mean employed or self employed for gain or reward, for at least 10 hours and less than 30 hours each week. Therefore, where a member who is 65 or more and under age 70, does not satisfy the work test, the fund must not accept personal contributions in respect of the member.
Conclusion
You can contribute non-concessional contributions totalling $450,000 in the 2013-14 financial year, without exceeding your non-concessional contributions cap, as long as the total amount of $450,000 of non-concessional contributions are made in the first year, before you are 65 years old.
Once you are 65 years old, you will have to satisfy the work test before your fund will be able to accept member contributions. Any additional non-concessional contributions you make in 2014-15, where you satisfy the work test, will be in excess of your non-concessional contributions cap and will result in a tax liability.
If however, you bring forward the three years' entitlement but do not make the full contribution in the first year, you will have to meet the 'work test' in any later year that a contribution is made and you are no longer under 65.