Leading up to the end of the financial year it is important for members of self-managed superannuation funds (SMSFs) to review the contributions made during the year to determine how much more can be contributed before July 1.
On the surface, the rules may seem simple. Each year you can contribute up to $25,000 in concessional (deductible) contributions and up to $100,000 in non-concessional (after-tax) contributions. But digging down into the details on how these caps work uncovers far more complexity, particularly with the non-concessional cap.
First, if you are over 75 or between 65 and 75 and not working, you can't make any personal contributions. You also can't make contributions if your total superannuation balance is calculated to be more than $1.6 million (indexed in future years). In these situations, only compulsory employer contributions can still be paid into your superannuation account.
Let's look at the complexity in the rules.
The bring-forward rule
If you were under 65 on July 1, you may be able to pool the non-concessional cap for the current financial year and the next two years to contribute up to three times the cap in a single year. This is called the bring-forward rule.
This can be useful if you want to contribute more than $100,000 in a single year but does not increase the total you would be allowed to contribute as non-concessional contributions over the three-year period.
A major change in superannuation rules from July 1, 2017 – which limited the amount that can be used to start an income stream to $1.6 million (the general transfer balance cap) – added complexity to the bring-forward rule as the government wants to limit the opportunity for people to accumulate more than this in superannuation.
If you trigger the bring-forward rule in the 2017-18 financial year, your three-year non-concessional contribution total will depend on your total superannuation balance as at June 30, 2017 (as shown in the table).
Non-concessional caps were higher before July 1, 2017, with a cap of $180,000. If you made non-concessional contributions of more than $180,000 in the 2015-16 financial year and triggered the bring-forward rule in that year, your maximum three-year non-concessional contribution total is $460,000. If triggered in 2016-17 it is $380,000. Your contributions this financial year are then limited to the available three-year total that remains.
Patrick was 53 on July 1, 2017. He has not previously made any personal contributions to super but inherited some money and wishes to invest for his retirement.
If Patrick has a total super balance of $500,000, he can use the non-concessional contribution cap for the current financial year as well as the next two years to contribute up to $300,000 into his self-managed fund before July 1, 2018. He will not be able to make further contributions until July 1, 2020 if he contributes the full $300,000 in this financial year.
If Patrick had a total super balance on June 30, 2017 of $1.4 million he would only be able to contribute up to $200,000. If his total super balance stays above $1.6 million, he will not be able to make any future non-concessional contributions.
Counting the right contributions
When counting how much you have contributed as non-concessional contributions, you need to include all personal contributions you have made from after-tax contributions and for which you don't plan to claim a tax deduction.
Even if you are an employee, at the end of the financial year you can choose whether to claim a tax deduction for any personal contributions. If the contributions you claim as a deduction plus your employer contributions exceed the concessional contribution cap (currently $25,0000), extra tax penalties apply.
Some contributions that many people forget are also counted as non-concessional contributions include:
Contributions your spouse has made on your behalf;
Amounts rolled over from a foreign superannuation fund, except the earnings component that you elected to include in the fund's taxable income;
Any excess concessional contributions that you have not withdrawn from superannuation.
You do not need to include amounts that you have correctly contributed under the capital gains tax cap amount after the sale of a small business or eligible business assets or the structured settlement rules.
Administering the contributions
If you want the contributions to be counted against your non-concessional cap for this financial year, they must be received in the fund and be allocated to your account before June 30, 2018.
Make sure you have recorded the classification of the contributions correctly in your fund records. If you plan to claim a tax deduction before lodging your personal tax return, you need to notify the fund trustee. You could write a letter and provide all details but with self-managed funds it is better to use the "notice of intent to claim or vary a deduction for personal super contributions" form provided by the Australian Tax Office to ensure all information is reported correctly. The fund trustee needs to send you back a written acknowledgment that the form has been received.
One last administrative requirement is to make sure you hold your tax file number (TFN) in your self-managed fund records. If it is not held, the fund trustees cannot accept any non-concessional contributions from you so the money will need to refunded back to you.
Louise Biti is a director of Aged Care Steps.
Disclaimer: The information in this article is general and does not take into account your particular circumstances.
By Louise Biti
12 April 2018