Contributions can play an essential role in a self-managed superannuation fund
Your contributions can be made in two ways – by cash or an asset (known in the trade as ‘in specie’ contribution).
Typically, your SMSF can accept:
- employer contributions
- personal contributions
- salary sacrifice contributions
- super co-contributions
- eligible spouse contributions
- downsizer contributions.
The Australian Taxation Office (ATO) is big on paperwork and record keeping for SMSFs. As a trustee you are responsible for documenting all your contributions and rollovers – including the amount, type and breakdown of components. Generally you’ll also need to allocate your contributions to your SMSF members’ accounts within 28 days of the end of the month in which you received them.
Defining allowable contributions
The ATO has set minimum standards for accepting contributions.
- The type of contribution – for example, you can accept mandated employer contributions such as super guarantee contributions from a member’s employer, at any time.
- Your age – for example, if you’re 75 or over you can’t make a non-mandated contribution (except downsizer contributions).
- Whether you quote your tax file number.
Whether the contribution exceeds your SMSF-capped contributions limit.
Mandated employer contributions
Always popular with employees, mandated employer contributions are defined by the ATO as, “those made by an employer under a law or an industrial agreement for the benefit of a fund member”. Super contributions absolutely fall within this category.
The good news is you can say yes to mandated employer contributions to your SMSF at any time, regardless of your age or the number of hours you’re working at that time.
Non-mandated contributions are above and beyond the minimum by law or obligation payment. They can be made by both employers and SMSF members. In the case of members, the contributions made by, or on behalf of, a member are exclusive of employer contributions.
By age and circumstance
Your ability as trustee of the SMSF to say yes to accept a non-mandated contribution depends entirely on your age and circumstances. Let’s unpack that.
- If you are under 67 years you can generally accept all types of contributions, bearing in mind your SMSF contribution cap. There is no work test.
- If you’re between 67-74 there is a work test^. You can say ‘yes’ if you are gainfully employed for at least 40 hours in period of 30 consecutive days in each financial year in which the contributions are made, or you qualify for the work test exemption*. The ATO is strict on its definition of what constitutes ‘gainfully employed’, as in paid work. Spouse contributions can’t be accepted after you turn 70. You can also accept mandated employer contributions.
If you are aged between 67 and 74 you may make voluntary contributions where you do not satisfy the work test provided
- you satisfied the work test in the financial year prior to the financial year in which the contributions are made,
- you had a total superannuation balance of less than $300,000 at the end of the previous financial year and
- you have not used the work test exemption previously.
- If you’re 75 or over you generally cannot accept any contributions apart from mandated employer contributions.
‘In specie’ contributions
‘In specie’ contributions, refers to transferring assets such as shares or a commercial property direct to the SMSF rather than contributing cash. There are very strict rules on what can and can’t be transferred when it comes to in-house assets – for example, residential property you own cannot be transferred. If in doubt always seek expert advice.
Contribution caps are applied for a number of contributions types made for SMSF members in a financial year.
The two major ones are the non-concessional cap which applies to after-tax contributions and the concessional cap which applies for those contributions for which a tax-deduction has been claimed:
- Concessional contributions are capped at $27,500 for the 2021/22 financial year.
- Non-concessional contributions are capped at $110,000 for the 2021/22 financial year, however if you are under 67 during the year, you may be able to use the bring forward provisions to use your cap for the following two years thereby allowing a contribution of up to $330,000 in a single year. Please note, you cannot make a non-concessional contribution if your total super balance at the last 30 June was at least $1.7 million.
Exceeding your cap
If your total contributions exceed the contributions caps those excess contributions could attract additional tax. You can elect to have excess contributions refunded to you.
If you exceed a contributions cap, generally additional tax applies as follows:
- excess concessional contributions are taxed at your marginal tax rate, less a 15% offset for the tax already paid by the fund.
- You can elect to withdraw the excess from super. If you don't make this election the excess also counts towards your non-concessional contributions cap.
- excess non-concessional contributions not released from super are taxed at the top marginal rate of tax plus Medicare Levy. You can elect to withdraw the excess plus associated earnings from super with penalty tax only applied to the earnings.
^ In the 2021 Federal Budget it was proposed that from 1 July 2022 individuals aged 67 to 74 will no longer need to meet the work test when making, or receiving, non-concessional super contributions or salary sacrificed contributions. Personal deductible contributions would still be subject to meeting the work test.
This information is general in nature and does not take into account your personal needs, objectives or circumstances and therefore, before acting on it, you should consider whether it is appropriate for you. This article provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such. This article may contain material provided by third parties derived from sources believed to be accurate at its issue date. While such material is published with necessary permission, no company in the Westpac Group accepts any responsibility for the accuracy or completeness of, or endorses any such material. Except where contrary to law, we intend by this notice to exclude liability for this material.
Superannuation is a means of saving for retirement, which is, in part, compulsory. The government has placed restrictions on when you can access your investment held in superannuation. The Government has set caps on the amount of money that you can add to superannuation each year on both a concessional and non-concessional tax basis. There will be tax consequences if you breach these caps. For more detail, speak with a financial adviser or visit the ATO website.
BT Portfolio Services Ltd ABN 73 095 055 208 AFSL 233715 (BTPS) is the operator of BT Panorama (the investor directed portfolio service). BT Funds Management Limited ABN 63 002 916 458 AFSL 233724 (BTFM) is the issuer of BT Cash. Westpac Financial Services Ltd ABN 20 000 241 127 AFSL 233716 (WFSL) is the issuer of BT Managed Portfolios (together, the Panorama Products). An Investor Guide is available for BT Panorama and a PDS is available for BT Cash and BT Managed Portfolios and can be obtained by calling 1300 554 267, or visiting BT SMSF. You should obtain and consider the relevant disclosure documents before deciding whether to acquire, continue to hold or dispose of interests in the Panorama Products. In addition, BTPS is also the provider of the SMSF Establishment Service and the SMSF Administration Service. The Guide and Terms and Conditions for each of these services are available by contacting BTPS.
BT Portfolio Services cannot give tax advice. Any tax considerations outlined in this article are general statements, based on an interpretation of the current tax law, and do not constitute tax advice. The tax implications of BT SMSF can impact individual situations differently and you should seek specific tax advice from a registered tax agent or registered tax (financial) adviser. © BT - Part of Westpac Banking Corporation. Information current as at 30 August 2017.