The Australian Government encourages people to plan and save for their eventual retirement through compulsory contributions into superannuation. A key source of these superannuation contributions has been through your employer however additional amounts can also be contributed by individual themselves. These funds are then invested and accumulated over an individual's working life in a low tax environment.
There are many ways in which an individual's superannuation can be managed. A popular method is to establish a Self-Managed Superannuation Fund (SMSF) which allows people to directly control and manage how their retirement savings are invested. Naturally, there are a considerable number of rules and regulations that govern SMSFs and this places a lot of responsibility on those with SMSFs.
SMSFs is a superannuation fund owned and managed by members of the fund. Money can be paid into a member's account within a SMSF however there are strict regulations on how and when this can occur; which must be in accordance with the rules and legislation for SMSFs and the requirements of the Australian Taxation Office.
Provided the contributions are made in accordance with legislation, the trustee can accept contributions from:
A member's employer;
A member's spouse;
A relative of a member;
An employer of the spouse or relative of the member; and
Any other person or entity.
There are however limits on the amounts that can be contributed to a superannuation fund, which are referred to as "caps". These are:
$27,500 per person per year of tax deductible contributions, which includes employer contributions, called 'Concessional Contributions'. If the member’s balance is less than $500,000 and the member has not fully utilised their concessional contributions cap form 2019 onwards, these unused concessional contributions can be added to the cap of $27,500
$110,000 per person per year (equivalent to four times concessional contributions limit), of non-taxable contributions, called 'Non-Concessional Contributions' (equivalent to four times concessional contributions), as long as the member's balance is less than $1.7 million.
A member under the age of 67 can contribute up to three times the value of the non-concessional cap in one financial year ($330,000) providing the member’s balance is less than $1.7 million and there are no further contributions in the following two financial years. Non-concessional contributions are not included in the assessable income of the Fund.
Any Contributions received by the fund that are in excess of relevant limits will be subject to additional tax (an Excess Contributions Tax) which is imposed on individuals and not the fund.
If a member has contributed more than their non-concessional contribution limits in a year, the ATO will issue an Excess Non-Concessional Contributions (ENCC) determination to the member and the member will have to choose to either:
have the entire excess amount plus 85% of any associated earnings released from the fund. The ATO will then amend the member's tax return to include the full amount of the associated earnings, and allow a 15% tax offset for the tax that would have been paid by the super fund on the earnings
leave the excess amount and the associated earnings in the fund. The ATO will Issue a notice of assessment to the member taxing them 47% on the entire excess amount. The ATO will send a release authority to the super fund to allow them to pay the tax from the member’s account.
If a member has contributed more than their concessional contributions limit in the year, the ATO will amend the member’s tax return to include the excess amount as assessable income and allow a 15% tax offset for the tax that would have been paid by the super fund on the contribution. The member can have up 85% of the excess contributions released from the fund to pay the additional income tax.
For the income years 2013–14 to 2020–21, if you exceed your concessional contributions cap, you also may have to pay the excess concessional contribution charge (ECC charge).
This charge is in addition to the extra tax you pay when your excess contributions are included in your assessable income. It is applied because the tax on the excess concessional contributions is collected later than normal income tax. From 1 July 2021, the ECC is no longer payable.
Excess concessional contributions are counted towards the member's non-concessional contributions cap.
Prior to 1 July 2022, members who are over 67 but less than 74 years of age could not make contributions unless they worked at least 40 hours over a period of not more than 30 consecutive days in a financial year - called the 'work test'.
From 1 July 2022 the work test is being removed except for individuals wishing to claim a personal superannuation contribution deduction. Trustees of super funds will be able to accept employer contributions and salary sacrifice contributions for members in this age bracket without having to apply the work test. For individuals 67 to 74 years old wishing to claim a personal superannuation deduction for their contribution, the ATO we will be administering the work test at the time they lodge their income tax return.
Members cannot make personal contributions 28 days after the month in which they turn 75. Three exemptions of this rule include:
- A Member being able to contribute amounts up to a lifetime limit of $1,650,000 (for the 2022 year) from the sale of assets qualifying under the small business capital gains tax (CGT) concessions. This exemption will also apply to pre-CGT assets that would otherwise have qualified, but for their pre-CGT status, or to assets sold as a result of the business owner suffering permanent incapacity;
- A Member being able to contribute the proceeds of any settlement received for injuries resulting in permanent disablement; and
- A Member who meets the criteria being able to contribute up to $300,000 from the proceeds of the sale (or part sale) of their home into their super fund (downsizer contribution).
Contributions can be made in cash or by an 'in-specie' transfer of assets. Non-cash contributions into the member account of their fund, called a "in-specie contribution" can be through the transfer of shares and other investments, which can also include 'business real property' (provided it is used wholly and exclusively for business purposes and must not have any outstanding loans associated with it), as non-concessional contributions. In-specie transfers into a fund must be at market values.
Rollovers & Transfers
A member is able to transfer amounts from another superannuation entity into their SMSF, however the trustee has absolute discretion on whether to accept any transfers into the fund.
A Member may also request the trustee to transfer or rollover all or part of their member account to another superannuation entity or to another member's account (such as splittable contributions from their member's account to their spouse's member's account), which is also at the discretion of the trustee whether to accept any transfers out of a member's account.
Adequate cash flow within the fund is important to meet liabilities as and when they fall due; such as transfers out (as well as any other expenses). Out of pocket expenses paid by a member will be considered contributions if they cannot be repaid by the fund or until it has an ample bank balance.
Contact H&R Block SMSF Solutions should you require any assistance regarding contributions into your fund.
Important informationThis content has been prepared by H&R Block Ltd ("H&R Block") ABN 89064268 800.The information is general in nature and ds not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice. Although every effort has been made to verify the accuracy of the information contained above, H&R Block, its officers, employees and agents disclaim all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained on this website or any loss or damage suffered by any person directly or indirectly through relying on this information.
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