Personal Super Contributions

1. Introduction
2. Concessional – Tax Deductible Contributions
3. Do I Need to be self Employed to obtain the tax deduction?
4. Eligibility requirements for a tax deduction
5. Do I need a receipt to substantiate my tax deduction?
6. Concessional Contribution – Approved Form to claim a tax deduction
7. What is the maximum contribution?
8. Can I transfer Shares or property to my super fund as a contribution?
9. Non Concessional (non tax deductible) Contributions – Introduction
10. Advantages of non concessional contributions
11. Conditions to make a non concessional contribution – work test
12. What is the maximum Non Concessional Contribution
13. What if I exceed the Contributions Concessional Cap (tax deductible)
14. Do free services provided to a SMSF represent a contribution, like payments of expenses on behalf of a SMSF do.
15. Low Income Super Contributions Payment.

Introduction

Personal Super Contributions means contributions you make, not your employer, to your super fund. Personal Contributions can be tax deductible to you personally called concessional contributions and non tax deductible (called non-concessional contributions).

Concessional – Tax Deductible Contributions

You can personally receive a tax deduction by making a payment (personal concessional contribution) to your superfund if you:

• are not employed and do not have a employer making contributions on your behalf:

Previous law was that where you were employed you must have had employment remuneration of less than 10% of your assessable income, reportable fringe benefits & super contributions .

• Satisfy eligibility requirements (see below).

Do I Need to be self Employed to obtain the tax deduction?

No, You don’t need to be self employed to claim a deduction, for example you could not work for the entire year and be just receiving interest income and still qualify for the tax deduction.

Eligibility requirements for a tax deduction

Remember all contributions that receive the benefit of a tax deduction to the person/organisation making the contribution are contributions that are taxed at <tax rate%> in the SMSF. Before thinking about your eligibility for a tax deduction it is important to distinguish between yourself personally obtaining a tax deduction and your company/business obtaining a tax deduction. The below eligibility criteria relate to yourself personally obtaining a tax deduction:

• Must receive income from a source –
  • Previously Self Employed persons had to have salary and wages of less than 10% of their taxable income, this has been removed.
  • Current laws now state anyone can make a personal concessional superannuation contribution and receive a tax deduction as long as the person gets their income from either
    • S&W,
    • personal business (contractors etc),
    • investments (rent, interest, dividends)
    • government pensions or Super,
    • partnership/trust distributions, foreign source income. 
• Over 67 and under 75 meet the work test, see below.
• Under 75 years of age – last payment to be made 28 days after the end of the month turning 75.
• Over 18 or If not over 18, then employed or carrying on a business
• Person making the contribution has made a written notice in the approved form.

here’s what the ATO has to say <ATO-Link>.

Do I need a receipt to substantiate my tax deduction?

Sort of, what you need is to notify the trustee (likely yourself if you’re the trustee) of yourself as a member claiming a tax deduction in the approved form for the super contribution and receive acknowledgment from the trustee. These rules may change with the proposed removal of the 10% rule.

 

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Concessional Contribution – Approved Form to claim a tax deduction

What is the maximum concessional contribution?

The maximum dollar value and eligibility changes based on the ATO budget announcements each May, at present it is $25,000 provided you are under 65 or if under 75 and and 65 or older then you continue to meet the work test (see below). In prior years the maximum contributions that could be received depend on your age known often referred to as “Age based Limits”, they are:

• $<Rates Page> for employees under 50 years of age;  and
• $<Rates Page> for employees over 50 years of age.

Previous laws where you were under 50 on 30 June

<50, If your less than 50 on 30 June, the contribution limit is <Rates Page> for the financial year. These amounts are tax deductible paid by the employer or eligible members. The superfund pays <see%tax rate> tax on these contributions or the top personal marginal rate currently 46.5% where a Tax File Number is not quoted.

>50, If your 50 or over on 30 June, the contribution limit is <click here> for the financial year. These amounts are tax deductible paid by the employer or eligible members. The superfund pays <see%tax rate> tax on these contributions or the top personal marginal rate currently 46.5% where a Tax File Number is not quoted.

They used to say timing is everything, and this is true the year you turn 50 when the rules revert back to allowing you to increase your contribution, however get it wrong and you could be penalized without even knowing it. You see if your birthday was 1 June and your contributions were made before 1 June, then your maximum contribution would be <click here>. However when the rules change back to allowing a larger contribution after you turn 50 then be careful of the timing, you could get penalized with a Excess Contributions Tax. However, get the timing right, if you made even $1 of a contribution after 1 June (your birthday) then your maximum contribution would have been eligible for the larger contribution …and no penalty! To read about the current maximum non concessional contribution (non tax deductible to the contributor) <click here>.

Can I transfer Shares or property to my super fund as a contribution?

Yes you can either as a concessional (tax deductible to the contributor) or non concessional (non tax deductible to the contributor). Tax Saving Strategy – for doing this is lets say you want to eliminate capital gains tax on shares in your own name, you can contribute these shares to the super fund as a contribution, claim the tax deduction, and offset this against the capital gain, depending on the numbers you could eliminate the capital gains tax and even better have the shares in the superfund paying tax at only <see%tax rate> on the income or tax free while in pension phase! Here’s what the ATO has to say <ATO-Link>.

Here’s what the ATO has to say about concessional (tax deductible contributions to the contributor) <ATO-Link>.

Non Concessional (non tax deductible) Contributions – Introduction

Non Concessional Contributions to a members superfund are contributions made by a contributor that does not receive a tax deduction for making the contribution. Non Concessional Contributions are made to a members superfund largely by the member, but can be from the members spouse or government for example.

Advantages of non concessional contributions

Advantages for making non deductible (non concessional) contributions to your super fund:

• Spouse – effective strategy to increase non working spouse contributions to maximize family savings in Superannuation.
• Reduces the tax to <see%tax rate> on investment earnings as it could be compared to the individual tax threshold rates.
• Couple with a Pension in retirement can produce tax free component advantages.

Conditions to make a non concessional contribution

Work test <Conditions> to make a non concessional contribution are:

• Under 75 years of age and 67 (65 for 2020 & earlier years) and over – last payment to be made 28 days after the end of the month turning 75 if the member was gainfully employed at least on a part time basis for a period of 40 hours within a 30 day period during the financial year in which the contribution was made.
• Over 18 or
• If not over 18, then employed or carrying on a business

For contribution strategies that involve the Work Test <click here>

What is the maximum Non Concessional Contribution

Member contributions where the superannuation fund pays nil (0%) tax on these contributions because the member making the contribution did not receive a tax deduction. For the maximum that can be contributed per year see the tax table <click here>, however be aware of the pension cap, for more details <click here>. Bring forward rule – also where the person has not reached 65 for at least one day of the financial year, 3 years contributions can be made in one year as a lump sum contribution provided the members fund balance is less than pension cap, for the cap <click here>. If you were to make this lump sum contribution then you could not contribute for the next two (2) years as you have used your limits up already.

What if I exceed the Contributions Concessional Cap (tax deductible)

If you exceed the maximum contribution amount click here, then you will need to pay additional tax called Excess Contributions Tax. Excess Contributions Tax is at the rate that brings the tax payable to the top marginal rate currently 46.5% (including medicare). Therefore as Tax Deductible contributions are already taxed in the super fund then an additional 31.5% Excess Contributions Tax applies if you exceed the maximum contribution cap limit. To read more about the maximum contribution <click here>. Tax Saving Strategies – while excess contributions tax was originally brought in to deter excess contributions, changes in the law have now resulted in some tax planning opportunities, read more to understand more about these <contribution strategies>.

Here’s what the ATO has tyo say about excess contributions tax <ATO-Link>.

Here’s what the ATO has to say about Non Concessional Contributions <ATO-Link>.

 Do free services provided to a SMSF represent a contribution, like payments of expenses on behalf of a SMSF do.

• Interest Free Loan from Related Party resulting in a saving to the SMSF is acceptable; and
• Free Labour provided by a related party resulting in a saving to the SMSF is acceptable

LOW INCOME SUPER CONTRIBUTION PAYMENTS

The low income super contribution (LISC), which started on 1 July 2012, aims to help eligible low-income earners save for their retirement, this was funded by the Minerals Rent Resource Tax which will be withdrawn by the Liberal government in 2013 and consequently the LISC will be withdrawn also.

LISC was for people who have an adjusted taxable income of $37,000 or less per year. People who are eligible for LISC will get a government super payment that is 15% of their concessional contributions, which includes salary sacrifice payments. The maximum payment will be $500 per year.

SMSF Members don’t need to apply for LISC – the ATO will work out their eligibility using information on their tax return or, if the member doesn’t lodge a tax return, using other information the ATO collects.

Where possible, the ATO will pay your members’ LISC to your SMSF electronically.The first payments are likely to be made from September 2013 for members who have lodged their tax return before then. If a member is not required to lodge a tax return, but is entitled to LISC, payments will be made from 1 July 2014 for the 2012–13 financial year. Make sure you provide the correct tax file numbers for each of your members in your SMSF annual return,to ensure LISC payments can be made;

The existing super co-contribution program also aims to boost the super of low-to-middle income earners. The super co-contribution continues in the 2013–14 financial year.

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