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Subject: Non-concessional contributions - bring-forward provisions
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 relevant income year?
Answer/Advice
Yes
This advice applies for the following period:
30 June 2013
The arrangement commences on:
1 July 2012
Relevant facts
Your advice is based on the following facts.
· You are retired from employment.
· You have an interest in an accumulation fund with a complying superannuation fund.
· You and your spouse sold a property in 20XX and in the YY income year, you made a non-concessional contribution less than the non-concessional contributions cap to a Retirement Savings Account (RSA) with a RSA provider.
· During the 1st quarter of the relevant income year, you made a non-concessional contribution to the RSA.
· You intend to make further non-concessional contributions to a superannuation fund in the relevant income year to trigger the bring-forward provisions without exceeding your non-concessional cap.
· You are under 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).
Reasons for decision
Summary of decision
During the relevant income year, you are under 65 years of age, have not already triggered the bring-forward provision and intend to make non-concessional contributions in excess of $150,000 but not more than $450,000. Therefore, you are able to trigger the bring-forward provision by contributing an amount in excess of $150,000 and up to $450,000 in the relevant income year.
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 relevant 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 relevant 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, you have made non-concessional superannuation contributions to a Retirement Savings Account (RSA) with a RSA provider in the 20YY and 20ZZ income years. Both non-concessional contributions were less than the non-concessional contributions caps.
In the 20YY income year a contribution not exceeding your non-concessional cap of $150,000 has been made. In this instance, you have not triggered the bring-forward provisions in the 20YY income year.
You made a non-concessional contribution of $100,000 to your RSA in the 1st quarter of the relevant income year. This contribution does not exceed your non-concessional cap therefore you have not yet triggered the bring-forward provision in the relevant income year.
In order to trigger the bring-forward provision in the relevant income year you need to contribute a further non-concessional contribution (an amount in excess of the non-concessional contribution cap) to your RSA prior to 30 June 20ZZ.
In this scenario two future years' entitlements up to the bring-forward residual amount can be made in the two subsequent income years without exceeding the non-concessional contributions caps for those income years.
Alternatively, you can contribute a further contribution but not more than $450,000 in the relevant income year without exceeding your non-concessional contributions cap. In this case, you will be unable to make further non-concessional contribution for the two subsequent income years without exceeding your non-concessional contribution caps.
Please note, for income tax and superannuation purposes, an RSA is treated in a similar manner to traditional superannuation products. It means, RSA providers and payments from RSAs are subject to equivalent taxation treatment to that applying to superannuation funds and superannuation benefits.