What is a Super Contribution?
Super Contributions are quite often the main source of income for an SMSF and also a high risk area for many trustees. There are rules around who, how, when and what can be contributed to the SMSF.
Understanding the contribution rules is crucial to the ongoing compliance of your SMSF.
A superannuation contribution is “anything of value that increases the capital of the superannuation fund.” This can be either in the form of cash or an asset.
The classification of a contribution will determine the taxation treatment within a fund, the member component (taxable or tax free) and within which cap the contribution is included.
Types of Super Contributions
The two main contribution types are below;
Concessional Contributions are also known as taxable contributions and are taxed upon entry into the super fund at 15%. They are allocated to the taxable component of the member’s balance. Any amounts received from an employer including the superannuation guarantee and pre-tax salary sacrifice arrangements are concessional contributions. These payments are tax deductible to the employer.
These are also known as non-taxable contributions as they are not taxed upon entry into the super fund. These contributions are allocated to the tax free component of a member’s balance. Non-concessional contributions are made to the fund using after tax funds and are personal contributions. A tax deduction is not able to be claimed for these types of contributions.
Who can contribute?
Under age 65
- There are no restrictions on the eligibility of people under the age of 65 to contribute to super.
Aged 65 – 74 inclusive
- The member must have worked atleast 40 hours over a consecutive period of no more than 30 days during the financial year. This is referred to as the work test and must be satisfied BEFORE the member makes a contribution.
- The fund can accept contributions that are employer contributions paid under an agreement of award.
Aged 75 and over
- No personal contributions can be made, only mandated contributions.
The Contributions Cap
If a member is contributing to more than one superannuation fund, all concessional contributions (employer and personal) are added together and count towards the cap. The annual concessional contribution cap is $25,000.00. This cap applies to all age groups, which mean there is NO special higher cap for older Australians.
The non-concessional contributions cap is four times the concessional cap. Currently, the non-concessional contributions cap is $100,000 per member per year and again, if a member is contributing to more than one superannuation fund, the non-concessional contributions are added together and all count towards the cap. Excess Non-concessional contributions can be withdrawn and the associated earnings on those excess contributions count towards the person’s assesable income, less a 155 tax offset for contribution and earnings tax already paid. If a person chooses not to withdraw the excess non-concessional contributions, then those excess contributions are subject to the top marginal tax rate. If you are aged 65 or over you must still meet the work test to be eligible to make non-concessional contributions
What is the Bring Forward Option?
Members aged under 65 are permitted to use the bring forward option. This option allows the member to bring forward two years of non-concessional contributions to enable three times the cap ($300,000) to be contributed over three years. The bring forward option is automatically triggered when a member exceeds the non-concessional cap in a financial year. Members aged 65 and over cannot access this option.
How to make contributions?
The most common form of a contribution is a cash transfer to the superannuation fund. As long as the Trust Deed allows it, the SMSF members can also contribute to the fund through the transfer of assets. This is known as in-specie contribution. However, in-specie contributions that are accepted are only listed equities and business real property, where the valuation is based on market value and completed on a commercial basis.
Xpress Super provides daily online reporting which allows trustees to keep track of contributions and provides them with a summary per member.
For more information, check out our fact sheet Contributing to your SMSF or simply give us a call!