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Advice
Subject: Bring forward provisions - non-concessional contributions cap
Question
Can the 'bring-forward' provision under subsection 295-85(4) of the Income Tax Assessment Act 1997 be triggered in the relevant income year where a contribution in excess of the non-concessional contributions cap is made on the day you reached age 65?
Advice
No.
This ruling applies for the following period
Year ending 30 June 2014
The arrangement commences on
1 July 2013
Relevant facts and circumstances
You are a member of a superannuation fund, (the Fund).
You would like to make non-concessional contributions to the Fund and utilise the bring forward provisions of $450,000 for the relevant income year without exceeding your non-concessional contributions cap.
You will reach age 65 on 1 July 20XX.
Relevant legislative provisions
Acts Interpretation Act 1901 Section 37A.
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).
Income Tax Assessment Act 1997 Section 292-410.
Reasons for decision
Summary of decision
As you will have reached age 65 on 1 July 20XX you will be unable to take advantage of the $450,000 'bring forward' provisions 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)). The non-concessional contributions cap for the relevant income year is $150,000.
A taxpayer will be taxed on non-concessional contributions over the cap at the rate of 46.5%. This tax is imposed by the Superannuation (Excess Non-concessional Contributions Tax) Act 2007). The fund member is liable to pay the excess contributions tax in respect of the assessed amount, not their superannuation fund.
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).
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
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 must be under 65 years of age for at least one day of a financial year in order to be able to bring forward their future entitlements to two years worth of non-concessional contributions.
The explanatory memorandum to Tax Laws Amendment (Simplified Superannuation) Bill 2006 (the EM) states the following in relation to the 'bring forward' provisions:
1.85 As a concession, to accommodate larger contributions, people under age 65 in a financial year will be able to bring forward future entitlements 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 financial years without exceeding their non-concessional contributions cap. [Schedule 1, item 1, subsections 292-85(3) and (4)]
1.86 The bring forward will be triggered automatically when contributions in excess of the annual non-concessional contributions cap are made in a financial year by a person who is under age 65 at any time in the year where a bring forward has not already commenced. [Schedule 1, item 1, subsection 292-85(3)]
1.87 Where a bring forward has been triggered, the two future years' entitlements are not indexed. [Schedule 1, item 1, subsection 292-85(4)]
…
1.89 To simplify the operation of the non-concessional contributions cap, people aged 63 and 64 who take advantage of the bring forward will not be required to meet the work test in either of the following two financial years.
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 contributions cap would be calculated in accordance with subsection 292-85(4) of the ITAA 1997.
In this case you will be under age 65 in the prior income year.
The Acts Interpretation Act 1901 (AIA) contains provisions which apply to the interpretation of Commonwealth statutes. In particular, section 37A deals with the attainment of a particular age and states:
Attainment of particular age
For the purposes of any Act, the time at which a person attains a particular age expressed in years is the commencement of the relevant anniversary of the date of the birth of that person. (emphasis added)
In other words, for a person born at any time on 1 July 19YY they will, by virtue of section 37A of the AIA, be considered to have reached age 65 on the commencement of 1 July 20XX - that is, 12:00:00 am 1 July 20XX. Accordingly, there will be no time in the relevant income year where you will be under 65 years of age for the purposes of the bring forward provision.
As, by virtue of section 37A of the AIA, you will not be under the age of 65 in the 2013-14 income year, the requirements under subsection 292-85(3) of the ITAA 1997 will not be satisfied. Therefore the $450,000 'bring forward' provision under subsection 292-85(4) will not be available to you.
If your non-concessional contributions cap is exceeded in the prior income year, you will trigger the bring forward provision in that year. However, to make superannuation contributions on or after 1 July 20XX, you will need to be gainfully employed for at least 40 hours in a period of not more than 30 consecutive days during the relevant income year.