FirstTech
Super guide
2010/11
Adviser use only
FirstTech was ranked 1st by advisers for Technical Support in the 2010 Wealth
Insights Fund Manager Service Survey.
This Super guide has been developed to provide you with an easy reference tool when planning and reviewing your clients’ super, tax and retirement strategies. For additional facts, figures and information for the 2010/11 financial year, please refer to your FirstTech Pocket guide.
Contents
1. Key tax and superannuation thresholds 2010/11 6
1.1. Resident marginal tax rates 6
1.2. Low income tax offset 6
1.3. Senior Australians tax offset (SATO) 6
1.4. Taxation of superannuation member benefits 7
1.5. Taxation of super income stream benefits commenced from 1 July 2007 7
1.6. Taxation of super death benefits 8
1.7. Contributions caps 8
2. Getting money into super 10
2.1. How much can be contributed to super? 10
2.2. Contribution eligibility rules – summary table 10
2.3. Adviser contribution checklist 11
2.4. Work test 11
2.5. Member contributions 11
2.6. Employer contributions 12
2.7. Mandated employer contributions 12
2.8. Voluntary employer contributions 12
2.9. Fund-capped contributions 13
2.10. Tax file numbers 13
2.11. Children and super contributions 14
2.12. Caution with rollovers 14
2.13. In specie contributions 15
2.14. Temporary residents 15
2.15. Contributions from personal injury payments 15
3. Super contribution tax concessions 17
3.1. Tax deductions for personal super contributions 17
3.2. Conditions for claiming a tax deduction for personal super contributions 17
3.3. Primary conditions 17
3.4. Additional conditions 19
3.5. Employer tax deductions for super contributions 21
3.6. Offset for spouse super contributions 22
3.7. Children and tax deductions for super 22
3.8. Government co-contribution for super contributions 22
3.9. Overview of employer and personal deductible contributions 26
4. Contributions caps and taxation of contributions 28
4.1. Contributions caps – summary table 28
4.2. Concessional contributions cap 28
4.3. Concessional contributions 29
4.4. Non-concessional cap 30
4.5. Non-concessional contributions 31
4.6. Indexation of caps 32
4.7. Taxation of contributions 32
4.8. Contributions caps for constitutionally protected and defined benefit funds
and funds with reserves 33
5. Administration of excess contributions 38
5.1. How does the ATO track member contributions? 38
5.2. Member responsibility to track contributions 38
5.3. Assessment notice 38
5.4. Commissioner’s discretion 39
5.5. Release authority 39
6. CGT small business concessions and contributions to super 41
6.1. Capital gains tax concessions 41
6.2. Basic conditions for CGT relief 41
6.3. Additional eligibility rules for 15-year exemption 42
6.4. Contributing proceeds to super where 15-year exemption applies 42 6.5. Additional eligibility rules for $500,000 retirement exemption 43 6.6. Contributing capital gains to super where $500,000 retirement exemption applies 43 6.7. Additional eligibility rules for 50% (active asset) reduction 44 6.8. Additional eligibility rules for small business rollover 44
6.9. Lifetime CGT cap 44
6.10. Treatment of excess CGT contributions 44
6.11. Contribution rules for the CGT cap 45
6.12. Death and the small business CGT concessions 46
7. Moving super 48
7.1. Portability – transferring super balances 48
7.2. Contribution splitting – transferring recent contributions 50 7.3. Marriage breakdown – transferring super to another spouse 52
8. Getting money out of super 53
8.1. Preservation 53
8.2. Preservation age 54
8.3. Conditions of release with ‘nil’ cashing restrictions 54
8.4. Conditions of release with cashing restrictions 56
8.5. Compulsory cashing 61
8.6. In specie payments 61
9. Transition to retirement 62
9.1. Cashing restrictions for transition to retirement 62
9.2. Income streams for transition to retirement 62
9.3. Allowable commutations 63
9.4. Rolling back to accumulation 63
9.5. Priority of preservation components 63
9.6. Transition to retirement strategies 64
10. Taxation of super benefits 65
10.1. Taxation of super lump sums 65
10.2. Terminal medical condition payments 67
10.3. Taxation of super death benefits 67
10.4. Who is a dependant for tax purposes? 68
10.5. No low rate cap for death benefits 68
10.6. Untaxed element for certain death benefit lump sums 68 10.7. Deduction for increased amount (anti-detriment payment)
of super lump sum death benefit 69
10.8. Taxation of disability super benefits 70
10.9. Taxation of salary continuance insurance benefits 71
10.10.Taxation of rollover super benefits 71
10.11. Untaxed plan cap amount 71
10.12. Taxation of super income stream benefits commenced from 1 July 2007 72 10.13. Taxation of super income stream benefits commenced prior to 1 July 2007 72 10.14. Determining the tax-free and taxable proportions of super benefits 73
10.15. Proportioning – accumulation phase 74
10.16. Proportioning – pension phase – post 1 July 2007 pensions 75 10.17. Proportioning – pension phase – pre 1 July 2007 pensions 75
10.18. Pre July 1983 component 76
11. Retirement income streams 77
11.1. Introduction to super income streams 77
11.2. Taxation of retirement income streams 77
11.3. Types of super income streams that can be paid 77
11.4. Overview of new income stream standards 78
11.5. Minimum income percentage factors 79
11.6. Pro-rata rule and ‘1 June rule’ 79
11.7. What are the payment standards for account-based income streams? 79
11.8. Transition to retirement income streams 81
11.9. What are the payment standards for non-account-based (RCV) income streams? 81 11.10. What are the payment standards for lifetime income streams? 82 11.11. What are the payment standards for fixed term income streams? 83
11.12. Commutation rules 83
11.13. Social security and aged care treatment of income streams
from 20 September 2007 84
11.14. Term allocated pensions 85
11.15. Life expectancy factors 87
12. Taxation of super income 90
12.1. Taxation of income in super vs other investment structures 90
12.2. Taxation of capital gains in super 90
13. Super estate planning 92
13.1. Taxation of super death benefits 92
13.2. Death benefit payments 92
13.3. Super not part of an estate 92
13.4. Compulsory cashing of benefits upon death 92
13.5. Form in which death benefits may be cashed 92
13.6. Can death benefits be paid in specie? 93
13.7. Who can be paid a super death benefit? 94
13.8. Who is a dependant? 94
13.9. Death benefit nominations 96
13.10. Reversionary pensions 97
13.11. Rollovers of super death benefits 97
13.12. Prescribed period for death benefit commutations 97
14. Insurance in super 98
14.1. Types of insurance which may be held in super 98
14.2. Taxation of insurance benefits 98
14.3. Will a contribution used to fund an insurance premium
count towards the contributions caps? 98
14.4. Receipt of insurance proceeds in super 98
14.5. Total and permanent disability (TPD) 99
14.6. Post June 1994 invalidity component 99
14.7. Trauma insurance 99
14.8. Terminal illness 99
14.9. Self-insurance 99
14.10. Tax treatment of group insurance 100
14.11. Salary continuance insurance (SCI) comparison 102
15. Employer super issues 103
15.1. What is an employment termination payment (ETP)? 103
15.2. Genuine redundancy payments 103
15.3. Early retirement scheme payments 104
15.4. ETP checklist 105
15.5. Contributing ETPs into a super fund 105
15.6. Tax-free amount of genuine redundancy and early retirement scheme payments 105
15.7. Taxation of ETPs 106
15.8. Life benefit termination payments 107
15.9. Taxation of life benefit termination payments 107
15.10. ETP cap amount 107
15.11. Lower cap amount 108
15.12. Middle rate part 108
15.13. Upper cap amount 108
15.14. Transitional rules 108
15.15. Transitional termination payments 109
15.16. Directed termination payment (DTP) 110
15.17. Death benefit termination payments 110
15.18. Taxation of unused leave payments 110
15.19. Superannuation guarantee (SG) 111
15.20. The SGC 115
15.21. Choice of fund 117
15.22. Approved (Medicare) clearing house 120
15.23. Superannuation holding accounts special account (SHASA) 121
15.24. Tax deductions for employer contributions 121
15.25. Salary sacrifice agreements 121
16. Foreign super 123
16.1. Contributions caps and foreign super transfers 123
16.2. Transfer within six months 124
16.3. Transfer after six months 124
16.4. What if the individual receives a withdrawal directly from an overseas super fund? 124
16.5. Applicable fund earnings 124
16.6. Normal contribution rules and caps apply 126
16.7. UK pension transfers 126
17. Social security 127
17.1. Age pension 127
17.2. Age pension entitlements 128
17.3. Income test for age pension 128
17.4. Income test thresholds effective from 1 July 2010 129
17.5. What counts towards the income test? 129
17.6. Deeming 130
17.7. Deeming rates from 1 July 2010 130
17.8. Assets test 130
17.9. Assets test thresholds for age pension from 1 July 2010 131
17.10. Gifting 131
17.11. Super, income streams and social security 131
17.12. Social security categories of retirement income streams 133 17.13. Defined benefit income streams for social security 134
17.14. Income testing of retirement income streams 135
17.15. How do commutations affect the social security deductible amount? 138
17.16. Asset testing of retirement income streams 138
17.17. Exempt income streams 139
17.18. Assets test for asset tested (long-term) income streams 139 17.19. Assets test for asset tested (short-term) income streams 140
17.20. Assets test for defined benefit income streams 140
17.21. Retaining 100% asset test exemption 140
17.22. Retaining 50% asset test exemption 143
17.23. Aged care 146
17.24. Department of Veterans’ Affairs (DVA) service pensions 146
18. FirstTech flyers 148
Glossary of acronyms 149
Contacts for advisers inside back cover
1. Key tax and superannuation
thresholds 2010/11
1.1. Resident marginal tax rates
Resident individuals
Income Rate
$0 – $6,000 0%
$6,001 – $37,000 15% over $6,000
$37,001 – $80,000 $4,650 + 30% over $37,000
$80,001 – $180,000 $17,550 + 37% over $80,000
$180,001+ $54,550 + 45% over $180,000
Note: Medicare levy may also apply where taxable income exceeds a certain level, or the Medicare levy surcharge applies.
1.2. Low income tax offset
Taxable income (TI) Reduction in offset (RI) Maximum offset
$0 – $30,000 Nil $1,500
$30,001 – $67,499 (TI – $30,000) x 0.04 $1,500 – RI
$67,500+ $1,500 Nil
1.3. Senior Australians tax offset (SATO)
Family situation
Maximum tax offset level
$
Taxable income shade-out threshold
$
Taxable income cut-out threshold
$
Single 2,230 30,867* 48,707
Couple (each) 1,602 26,680 39,496
Couple separated because of illness (each) 2,040 29,600 45,920 Notes:
W Other eligibility criteria:
W age pension age or service pension age or older on 30 June 2011
W eligible to receive an age or service pension, even if no pension actually paid, and W not in prison for the whole income year.
W For a whole-of-year couple, offset eligibility of each partner is determined by their combined taxable income level, ie less than $78,992 or less than $91,840 if illness-separated, whereas offset entitlement is calculated on the basis of individual taxable income.
W Offset reduces by 12.5 cents for each dollar of taxable income in excess of the shade-out threshold. W Partnered senior Australians can transfer any unused portion of their tax offset to their partner. Please refer
to the Senior Australians and pensioner tax offset calculator on the ATO website (partner must be eligible for senior Australians or pensioner tax offset).
W Medicare levy does not apply for taxable income below the shade-out threshold.
* The 2010 Federal Budget has proposed reducing this threshold to allow for the fact that reduced LITO applies for taxable income over $30,000.
1.4. Taxation of superannuation member benefits
The tax-free component is not assessable and not exempt income and is not subject to tax*. Taxation of super lump sums – taxable component
Age
Taxable component taxed element
Max
tax rate Taxable component untaxed element
Max tax rate
60 and above
Not assessable income and not exempt income (NANE)
0% First $1.155† million (untaxed plan cap) 15% Balance over $1.155† million
(untaxed plan cap)
45%
Preservation
age to 59 First $160,000†
(low rate cap) 0% First $160,000† (low rate cap) 15% Balance over
$160,000† (low rate cap)
15% $160,000† (low rate cap) to $1.155 million
(untaxed plan cap) 30%
Balance over $1.155† million (untaxed plan cap) 45% Below
preservation age
Whole component 20% First $1.155† million (untaxed plan cap) 30% Balance over $1.155† million (untaxed plan cap) 45% Note: For all non-zero tax rates, Medicare levy may also apply.
Please refer to section 10.1 for more information.
* NANE income is neither assessable income nor exempt income. It is ignored when working out your client’s taxable income and their tax losses.
† This cap is indexed annually and is rounded to the nearest $5,000.
1.5. Taxation of super income stream benefits commenced
from 1 July 2007
Age Taxable component
taxed element Taxable component untaxed element 60 and above 0%. Not assessable income, not
exempt income (NANE) MTR less a 10% tax offset Preservation age to 59 MTR less a 15% tax offset MTR (no tax offset) Below preservation age MTR (no tax offset) MTR (no tax offset) Note: For all non-zero tax rates, Medicare levy may also apply.
See sections 10.3 and 10.8 for the taxation of super death benefits and disability super benefits.
1.6. Taxation of super death benefits
The tax-free component is not assessable and not exempt income and is not subject to tax. Super death benefits paid to a dependant
Age of deceased at
time of death Type of death benefit Age of recipient
Taxation of taxable component
Taxed element Untaxed element
Any age Lump sum Any age 0% NANE 0% NANE
Age 60
and above Income stream Any age 0% NANE MTR less 10%
tax offset Below age 60 Income stream Age 60
and above
0% NANE MTR less 10%
tax offset Below age 60 Income stream Below age 60 MTR less 15% tax offset MTR (no tax offset)
Super death benefits paid to a non-dependant** Age of
deceased
Type of death
benefit Age of recipient
Taxation of taxable component
Taxed element Untaxed element
Any age Lump sum Any age Max 15% Max 30%
Any age Income stream Any age Not permitted from 1 July 2007. Death benefit income streams commenced prior to 1 July 2007 will be taxed as if received by a dependant. NANE: Not assessable income and not exempt income (not subject to tax). It is ignored when working out your client’s taxable income and their tax losses.
MTR: Marginal tax rate.
For all non-zero tax rates, Medicare levy may also apply. For all payments, the tax-free component is NANE. These payments are not subject to tax.
Please refer to Chapter 14 for information on the tax treatment of TPD and SCI.
** Refer to section 13.8.
1.7. Contributions caps
This section does not include all the contributions caps. Please see Chapter 4 for more information.
Concessional contributions cap
Income year Amount of cap
2010/11 $25,000†/$50,000*
* There is a transitional period between 1 July 2007 and 30 June 2012. If a person is age 50 or over on the last day of a financial year within the transitional period, the transitional cap of $50,000 will apply. Between 1 July 2007 and 30 June 2009 the transitional concessional cap was $100,000 pa. This cap is not indexed.
† This cap is indexed annually and is rounded down to the nearest $5,000 (unchanged from 2009/10).
Non-concessional contributions cap
Income year Amount of cap
2010/11 $150,000/$450,000*
* People under age 65 at any time in the financial year may effectively bring forward two years’ worth of non-concessional contributions, allowing them to contribute $450,000 at any time over a three-year period without exceeding the cap (unchanged from 2009/10).
Note: If a person has invoked the two-year bring forward rule in a particular financial year, their non-concessional cap will remain at three times the non-concessional cap in the first year.
CGT cap
Income year Amount of cap
2010/11 $1.155 million
Note: The CGT cap is a lifetime limit and is indexed annually and rounded down to the nearest $5,000. See section 4.6 for more information.
2. Getting money into super
2.1. How much can be contributed to super?
There is generally no limit to the amount that may be contributed by, or on behalf of, a member within a financial year. However, the member will be personally liable to excessive tax on contributions made within a financial year that are in excess of contributions caps. For more information on contributions caps and taxation of excess contributions, see Chapter 4.
Caution!
There is one exception to no limits on contributions to super. The size of a single contribution will be limited if it is a fund-capped contribution (see section 2.9).
2.2. Contribution eligibility rules – summary table
The following table summarises the rules for when a person is allowed to contribute or receive contributions to a super fund for the 2010/11 financial year.
Important!
This is a summary table only. Please refer to the important notes following each table. This chapter looks at the eligibility to contribute to super. For further important considerations on contributions, please see the chapter on contributions caps.
For further general information on superannuation contribution eligibility and taxation, please refer to the FirstTech superannuation contributions quick reference guide.
Member’s age at time of contribution
Personal contribution – made by the member (section 2.5)
Other contributions – made by someone other than member or employer
Voluntary employer contribution (section 2.8)
Mandated employer contribution (section 2.7) eg personal non-
concessional, personal concessional contributions
eg spouse contribution, co-contribution
eg salary sacrifice, other employer contributions in excess of SG
eg 9% SG, contribution under industrial award
Under 65 Yes Yes Yes Yes
65 to 69 Work test (section 2.4)
Work test (section 2.4)
Work test (section 2.4)
Yes
70 to 74
(section 2.4) Work test(section 2.4)
No Work test
(section 2.4) Yes
75 and over (section 2.4)
No No No Yes
Note: A fund may accept contributions in respect of a member if the trustee is reasonably satisfied that the contribution is in respect of a period that it would have otherwise been made.
2.3. Adviser contribution checklist
WDoes the member need to meet the work test for the contribution to be made? WIs the contribution limited because it is a fund-capped contribution?
WDoes the fund require the member’s tax file number for the contribution to be made?
2.4. Work test
A member meets the work test if the member has been gainfully employed for at least 40 hours in a period of not more than 30 consecutive days in the financial year. WThe work test, if applicable, must be met prior to the contribution being made. WThe work test does not apply to people who at the time of the contribution are under
the age of 65.
WFrom age 65, a member must meet the work test at some point in the financial year prior to making member contributions or receiving voluntary employer contributions.
WFrom age 75, a member may not make member contributions or receive voluntary employer contributions regardless of the member’s work status.
WMandated employer contributions may be made at any age without the member meeting the work test.
WThe work test can be satisfied anywhere in the world. Gainfully employed
Gainfully employed is employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.
The concept of ‘gain or reward’ envisages receipt of remuneration such as salary or wages, business income, bonuses, commissions, fees or gratuities, in return for personal exertion. The gain or reward must be tangible (charity work is not generally considered gainful employment). The trustee cannot take prospective employment into account. The member must have worked at least 40 hours within 30 consecutive days in the financial year before the trustee can accept the contribution (ref APRA circular 1.A.1).
Age 75
Age 75 includes 28 days after the end of the month in which the member turns age 75.
2.5. Member contributions
Important!
The Superannuation Industry (Supervision) Regulations (SIS) eligibility rules define contributions as either employer or member contributions, unlike the tax rules, which define contributions as either concessional or non-concessional.
Member contributions are contributions by, or on behalf of, the member to the fund but do not include employer contributions.
A member contribution made by the member may be either concessional, where the member claims a tax deduction (if eligible), or non-concessional, where the member does not claim a tax deduction for the contribution (see section 3.2 for claiming tax deductions for personal super contributions).
Member contributions made by anyone other than the member are not tax deductible to the member. For example, eligible spouse contributions and Government co-contributions are not eligible for tax deductions.
Member contributions may be made by or for non-residents if the non-resident provides the trustee with a valid Australian tax file number within 30 days of making the contribution.
Caution!
A self managed super fund (SMSF) may fail the active member test and lose its complying status if member or employer contributions are made to a non-resident member’s account. For more information, please refer to Tax Ruling TR 2008/9 at www.ato.gov.au
Refer to Chapter 4 for more detail on the different contribution types.
2.6. Employer contributions
Employer contributions are contributions made by, or on behalf of, an employer-sponsor of the fund. An employer-sponsor is an employer who contributes to the fund for the benefit of a member of the fund who is an employee of the employer. Employer contributions can either be mandated or voluntary.
2.7. Mandated employer contributions
Mandated employer contributions are contributions made by an employer on behalf of an employee that are either:
Wused to satisfy employer superannuation guarantee (SG) obligations, which cease when the employee reaches age 70, or
Wmade to satisfy an obligation imposed by an award made or agreement certified by an industrial authority (there is no age limit on these mandated employer contributions). Budget announcement – raising super guarantee age limit to 75
From 1 July 2013, the age limit for payment of super guarantee contributions will be increased from 70 to 75. This would bring the SG age limit in line with personal and voluntary employer contributions.
At the time of writing, legislation to make this effective had not been introduced to Parliament.
2.8. Voluntary employer contributions
Voluntary employer contributions are all employer contributions that are not mandatory employer contributions. Examples include salary sacrifice and voluntary employer contributions in excess of an employer’s superannuation guarantee obligations.
2.9. Fund-capped contributions
Fund-capped contributions are all member contributions except:
Wpersonal contributions where a tax deduction will be claimed* (see section 3.2 for claiming tax deductions for personal super contributions)
Wdirected termination payments (see section 15.16)
Wcontributions arising from structured settlements or orders made for personal injuries Wcontributions that count toward and are within the member’s lifetime capital gains tax
(CGT) cap (see section 6.9), or
Wpayments by the Commissioner of Taxation of SG shortfall component for SG purposes, transfers from the Superannuation Holding Account and Government co-contributions.
* In the case of personal deductible contributions, a person has 30 days from the date of the contribution to submit a valid notice (see section 3.3) of their intention to claim a tax deduction (if applicable), otherwise the fund must return the excess fund-capped contribution. If the valid notice is submitted, the contribution is no longer a fund-capped contribution.
Return of excess fund-capped contributions
To help prevent a person from accidentally contributing more than the non-concessional contributions cap, super funds are required to return single fund-capped contributions that exceed:
W$150,000 if the member is age 65 or over on 1 July of the financial year, or W$450,000 if the member is less than age 65 on 1 July of the financial year.
The fund is required to return the excess fund-capped contribution within 30 days of receipt of the excess contribution plus fees and adjusted for market movement.
Important!
Super funds are not required to aggregate the total of member contributions received for a person either within the fund or across other funds. The requirement for funds to refund excess fund-capped contributions only applies to single contributions that exceed the limits above. For example, if a fund received a single $500,000 member contribution for a member under age 65, $50,000 would have to be refunded. If a fund received five $100,000 member contributions within a financial year, for a member under the age of 65, the fund would not be required to return any of the contributions.
2.10. Tax file numbers
If the fund does not have a member’s tax file number (TFN) on record, a member has 30 days from the date of the member contribution to supply the fund trustee with a TFN, otherwise the fund trustee must refund the contribution.
A super fund does not have to return employer contributions where a TFN has not been quoted; however, this will trigger no-TFN contributions tax (see section 4.7).
2.11. Children and super contributions
Anyone under age 65, including children (ie under age 18), can contribute to super without meeting a work test. Children are subject to the same contributions caps as adults. Eligibility to contribute to super by or for children
Super contribution for a child under age 18 which is made by:
Employer
of child Child
Anyone other than employer or child (eg parent) Tax deduction
available?
Yes – for employer
Only if child has derived income in the income year from:
W carrying on a business, or W employment activities.
A child must also meet all other requirements for claiming a personal tax deduction.
No
Tax status of contribution
Concessional W Concessional if tax deduction claimed, or W non-concessional if tax deduction is
not claimed.
Non-concessional
Contributions tax applied to contribution
Max 15% W Max 15% if concessional, or W 0% if non-concessional.
0%
Between 1 July 2002 and 1 September 2004 ‘child contributions’ to ‘child accounts’ (old Part 4A and reg 7.04(1)(e) of the SIS regulations) were subject to restrictions.
2.12. Caution with rollovers
Some rollovers are now contributions
From 1 July 2007, some transfers that would have previously been considered a ‘rollover’ are now considered to be contributions. This means the contribution rules must be met. Generally, transfers originating from outside the Australian super system are treated under SIS as contributions, and are subject to contribution rules. Examples of transfers from outside the super system include:
Wa directed termination payment from an employer Wa transfer from an overseas super fund, and
Wamounts from the small business CGT 15-year or retirement exemptions which are transferred into super.
Important!
If the member is age 65 or over, they will need to meet the work test to make transfers from outside the Australian super system. If the member is age 75 or over, they will not be able to make a transfer from outside the Australian super system regardless of their work status.
2.13. In specie contributions
In specie contributions are those made using assets other than cash. They may be made at any time by a person who is not a related party of the fund provided that all other relevant SIS provisions are met and subject to the trust deed. A person who is a related party of the fund can make an in specie contribution provided that the asset contributed is one that the fund is permitted by SIS to acquire from a related party (eg listed shares or business real property acquired at market value).
The market value of the asset being contributed in specie determines the amount of the contribution to be counted towards the relevant contributions cap.
Warning: The ATO has issued a Taxpayer Alert (TA 2008/12) on non-cash contributions to superannuation funds. This alert outlines the ATO’s concerns with using in specie payments or arrangements designed to allow a member of a super fund to avoid the superannuation contributions caps. For more information download this alert from www.ato.gov.au
2.14. Temporary residents
From 1 April, 2009, only limited conditions of release are available to temporary or former temporary residents (see section 8.4).
Therefore, superannuation trustees should be aware if an application for membership of a super fund is in respect of a temporary resident.
2.15. Contributions from personal injury payments
Payments arising from structured settlements or orders for personal injuries may be contributed to superannuation and are excluded from the non-concessional contributions cap (refer to section 4.5). However, for this exclusion to apply, a number of conditions must be met in relation to the type and administration of the payment. If these conditions are not met, the amount contributed may be included in the client’s non-concessional contributions cap and, as personal injury payments can be large in value, may result in excess contributions tax.
Contributions of personal injury payments can be excluded from a client’s non-concessional cap if they meet all the requirements of section 292-95 of ITAA 1997, as follows:
Type of payment
1 The payment is for the settlement of a claim for compensation or damages for, or in respect of, personal injury suffered by the client and the claim is based on the commission of a wrong, or on a right created by statute. The settlement must take the form of a written agreement between the parties to the claim (whether or not the agreement is approved or endorsed by a court), or
2 The payment is for the settlement of a claim in relation to a personal injury suffered by the client under a law of the Commonwealth or of a State or Territory relating to workers’ compensation, or
3 The payment is made following an order of a court for compensation or damages for, or in respect of, personal injury suffered by the client and the claim is based on the commission of a wrong, or on a right created by statute. The order cannot be one approving or endorsing an agreement as set out in point one above.
A claim for compensation or damages referred to above has to be made either by the client or their legal personal representative (LPR).
Note that if a claim is both:
Wfor compensation or damages for personal injury, and
Wfor some other remedy (eg compensation or damages for loss of, or damage to, property) only the amount of the payment that relates to compensation or damages for personal injury and identified in a settlement agreement or court order as being solely in payment of that compensation or those damages, can be contributed to super as a personal injury payment. The above definitions may result in a relatively broad interpretation of which payments are made ‘for, or in respect of’ personal injury and could include amounts paid for pain and suffering, for loss of future earnings, for future medical expenses, home modifications etc. However, specific legal advice should be sought to ascertain exactly which amounts paid to a particular client are eligible personal injury payments.
Administration requirements
WThe contributions must be made within 90 days of the later of the following: Wthe day the client received the personal injury payment
Wthe day an agreement for settlement of the personal injury payment was entered into Wthe day on which a court order for the personal injury payment was made.
WTwo legally qualified medical practitioners have certified that, because of the personal injury, it is unlikely that the client can ever be gainfully employed in a capacity for which they are reasonably qualified because of education, experience or training. This effectively means that the client must be totally and permanently disabled to make a personal injury payment to super that is excluded from their non-concessional cap. WEither before or when the contribution is made, the client or their LPR provides a
completed ‘contributions for personal injury’ form to their super fund.
In addition to gathering details relating to the payment, the ‘contributions for personal injury’ form requires a declaration by the client or their LPR that the contributions were derived from a personal injury payment received by the client or the LPR and that the contributions meet the requirements of section 292-95 of ITAA 1997 (and as outlined above).
We would therefore suggest that, in providing advice to a client about the contribution of personal injury payments, financial advisers recommend that the client also seek legal advice as to whether they meet the requirements of section 292-95 of ITAA 1997.
3. Super contribution tax concessions
3.1. Tax deductions for personal super contributions
From 1 July 2007, if the criteria outlined below are met, a person may claim a tax deduction for 100% of personal contributions made to super. Personal contributions, where a tax deduction is claimed, are concessional contributions, which are subject to a person’s concessional contributions cap. Excess concessional contributions are taxed an additional 31.5%. See section 4.7.
3.2. Conditions for claiming a tax deduction for personal
super contributions
The following primary conditions must be met to claim a tax deduction for a personal super contribution:
WThe taxpayer makes a personal contribution to a complying super fund or RSA for themselves, for the purpose of providing super benefits.
WThe taxpayer may only deduct the contribution for the income year in which the contribution is made.
WThe taxpayer must submit a valid notice to the fund trustee (see Taxpayer’s valid notice in section 3.3).
WThe fund trustee must have given the taxpayer an acknowledgement of receipt of the valid notice.
WThe taxpayer must have made the contribution on or before the day that is 28 days after the end of the month in which they turn age 75.
Additional conditions must be met only if:
Wthe taxpayer is an employee, at any time during the income year Wthe taxpayer is under age 18, or
Wthe contribution is sourced from the sale of an active asset, where the small business CGT concessions apply.
3.3. Primary conditions
Taxpayer’s valid notice
To deduct the contribution, or a part of the contribution, a taxpayer must have given the trustee of the fund a valid notice of their intention to claim the deduction, and the trustee must have given the taxpayer an acknowledgement of receipt of the notice.
A valid notice, the approved form (ATO NAT 71121), can be found at www.ato.gov.au It is not compulsory to use the ATO version of this form. These notifications can be made to the super fund in various ways and funds may create their own form for their members to use. The ATO form sets out the minimum data requirements.
Timing
The notice must be given to the fund provider before the earlier of:
Wthe day the taxpayer lodges their income tax return for the income year in which the contribution was made, or
Wthe end of the next income year following the year of the contribution.
Budget announcement – successor fund transfers
The Government has announced plans to allow a claim for a deduction for eligible contributions to be made to successor superannuation funds.
This measure would allow a deduction notice to be lodged with a successor fund where the relevant contributions were actually made to the transferring fund. Accordingly, it addresses a current inequity in superannuation laws which deny investors a perfectly legitimate tax deduction due to circumstances mainly out of their hands. Usually, investors do not have any control over the transfer of their current benefits from one super fund to another if it is based on a successor fund transfer.
At the time of writing, legislation to make this effective had not been introduced to Parliament.
What makes a taxpayer’s notice invalid
The taxpayer’s notice is not valid in any of the following circumstances: Wthe notice is not in respect of the contribution
Wthe notice includes all or a part of an amount covered by a previous notice Wwhen the taxpayer gave the notice:
Wthey were not a member of the fund, or Wthe trustee no longer holds the contribution, or
Wthe trustee has begun to pay an income stream based in whole or part on the contribution Wbefore the taxpayer gave the notice:
Wthe taxpayer had made a contributions splitting application in relation to the contribution, and
Wthe trustee had not rejected the application.
A taxpayer cannot deduct more for the contribution (or a part of the contribution) than the amount stated in the notice.
Important!
Don’t let your client lose their tax deduction.
The notice to claim a tax deduction will be considered invalid if the trustee has begun to pay an income stream based in whole or part on the contribution.
This applies regardless of whether a residual amount equal to or in excess of the amount sought as a tax deduction is left in the accumulation account.
This means, if you are planning to commence any kind of pension for a client, remind the client to send the trustee a valid notice of intention to claim any tax deductions for personal super contributions prior to commencing the pension. The trustee must acknowledge the notice – then it is safe to commence the pension.
If the notice is not submitted and acknowledged prior to commencing the pension, the client will lose their eligibility to claim the tax deduction.
Variations
WA taxpayer cannot revoke or withdraw a valid notice in relation to the contribution (or a part of the contribution).
WA taxpayer can vary a valid notice, but only so as to reduce the amount stated in relation to the contribution (including to nil). However, a taxpayer cannot vary a valid notice after the earlier of:
Wthe day the taxpayer lodges their income tax return for the income year in which the contribution was made, or
Wthe end of the income year following the year of the contribution. WA notice can still be varied after these time limits where:
Wthe notice is being varied as a result of the ATO not allowing a deduction, and Wthe notice is reducing the amount of a previous notice by the amount that it
is disallowed.
WA variation is not effective if, when the taxpayer makes it in the same circumstances as the original notices:
Wthey were not a member of the fund
Wthe trustee no longer holds the contribution, or
Wthe trustee has begun to pay an income stream based in whole or part on the contribution.
Acknowledgement of notice
The trustee must, without delay, give the taxpayer an acknowledgement of a valid notice. The trustee may refuse to give the taxpayer an acknowledgement if the value of the member’s account, at the time the trustee receives the notice, is less than 15% of the contribution.
3.4. Additional conditions
10% rule for employees
If a person is an employee at any time during the income year, the 10% rule must be met for the person to be eligible to claim a tax deduction for personal super contributions.
The 10% rule is: No more than 10% of:
Wthe total of assessable income for the income year, plus Wreportable fringe benefits (RFB) for the income year, plus
Wreportable employer superannuation contributions (RESC) for the income year must be attributable to employment.
Assessable income (from employment) + RFB + RESCs
Assessable income (from all sources) + RFB + RESCs < 10%
Note: Employment is where the person is treated as an employee for SG purposes. A person may be treated as an employee for SG purposes even where they do not receive any SG support (eg employee earning less than $450 per month).
Important!
The 10% rule only has to be met if, in the income year in which the contribution is made, the taxpayer is treated as an employee for SG purposes.
For example, someone who is totally self-employed, unemployed or living off investment earnings only, would not have to meet the 10% rule.
Assessable income
Assessable income is income before deductions. Salary sacrifice will reduce assessable income. Deductions for personal super contributions will reduce taxable income, but will not reduce assessable income.
Reportable employer superannuation contributions (RESC)
A RESC is, for an individual for an income year, an amount contributed by an employer or associate of the employer for the benefit of an individual to a superannuation fund or RSA, to the extent that either or both of the following applies:
Wthe individual has or had the capacity to influence the size of the amount
Wthe individual has or had the capacity to influence the way the amount is contributed so that his or her assessable income is reduced.
Maximum earnings test
All amounts that are attributable to the ‘employment’ activity are taken into account as assessable income in the 10% test. These include:
Wthe salary or wages (as used in its ordinary meaning) from the activity Wallowances and other payments earned by an employee
Wthe other payments, such as commission, director’s remuneration and contract payments, that are treated as salary or wages by section 11 of the SGAA for those persons who engage in an ‘employment’ activity in a capacity other than a common law employee
Wan employment termination payment received by a person in consequence of the termination of their employment, and
Wworkers’ compensation and like payments made because of injury or illness received by a person while holding the employment, office or appointment the performance of which gave rise to the entitlement to the compensation payments.
In the application of the maximum earnings test, the relevant ‘employment’ activity need not be an activity in Australia. For a non-resident, the income attributable to employment outside Australia is not assessable income in Australia and so will not be counted in the maximum earnings test. A non-resident with Australian sourced income that is not attributable to ‘employment’ activities may therefore be able to deduct a personal superannuation contribution made to an Australian superannuation provider against their Australian sourced income.
However, the ‘employment’ income of an Australian resident employed overseas by a foreign employer will be counted in the maximum earnings test if the income is assessable income. Source: ATO Tax Ruling 2010/1, paragraphs 64–66.
Age-related conditions
If a taxpayer is under the age of 18 at the end of the income year in which they make a contribution, the child must have derived income in the income year:
Wfrom the carrying on of a business, or
Wattributable to activities where the child is treated as an employee for SG purposes to be eligible to claim a tax deduction for the super contribution.
If a taxpayer is aged 65 or more and under 75, he/she must satisfy the work test in order for the super fund to accept the contribution.
Contributions sourced from the sale of a small business
A person cannot claim a tax deduction for CGT contributions that count toward their lifetime CGT cap. If an amount arising from a CGT small business exemption is contributed by someone age 55 or over as a personal contribution, they may claim a tax deduction, but the contribution will count toward the concessional cap.
3.5. Employer tax deductions for super contributions
From 1 July 2007, employers may claim a tax deduction for 100% of any super contributions made on behalf of employees to a complying super fund. The age-based limits that previously applied were abolished from 1 July 2007. While there is no longer any limit on the amount of contributions which an employer may claim as a tax deduction, an employee is unlikely to want their employer(s) to make contributions in excess of their concessional contributions cap because of the excess tax imposed on the individual.
An employer may claim a 100% tax deduction for super contributions made on behalf of employees either:
Won or before the day that is 28 days after the end of the month in which the employee turns 75, or
Wwhere the employer was required to make the contribution by an industrial award, determination* or notional agreement preserving State awards that is in force under an Australian law.
* An award or determination does not include an industrial agreement, such as an Australian Workplace Agreement, Collective Agreement or preserved State agreement under the Workplace Relations Act 1996, or a similar agreement made under a State law.
Employee
For an employer to deduct a contribution for an employee, the employee must be: Wan employee within the expanded definition of employee in section 12 of the
Superannuation Guarantee (Administration) Act 1992, or
Wengaged in producing the assessable income of the employer, or Wan Australian resident who is engaged in the employer’s business.
Employers are able to claim a deduction for contributions made on behalf of SG employees who are not engaged in producing the assessable income of the business, nor engaged in the business for the employer but are SG employees for the purpose of the SGAA (eg some directors may fall into this category). However, individuals who are not SG employees will still need to be engaged in producing the assessable income of the business or engaged in the business before a deduction can be claimed.
Limits on deductions for personal services income
An employer cannot deduct a contribution made to a super fund or an RSA for an associate’s work if the contribution relates to gaining or producing the employer’s personal services income (PSI). An associate includes a spouse, business partner or relative of the employer. However, an employer is permitted to deduct a contribution for work performed by the associate which does not relate to gaining or producing the employer’s PSI. In this case, the deduction would be limited to SG contributions.
See ATO TR 2003/10 for further information on tax deductions that relate to personal services income.
3.6. Offset for spouse super contributions
Conditions
A taxpayer is eligible to claim a tax offset for eligible spouse contributions if the following conditions are satisfied:
WThe recipient spouse’s assessable income + plus reportable fringe benefits (RFB) + reportable employer superannuation contributions (RESC) for the income year must be less than $13,800.
WThe couple live together in a bona fide domestic relationship (ie includes a de facto spouse but excludes married couples who have separated) or in a relationship that is registered under a law of a State or Territory.
WThe contribution must be made to a complying super fund, provide super benefits for the spouse or provide death benefits for the spouse’s dependants.
WThe contributor must not claim the contribution as a tax deduction. WThe gainful employment status of the contributor is not relevant.
WEligible spouse contributions may not be made for a recipient spouse who is age 70 or over. WIf the recipient spouse is:
Wunder age 65, then his/her gainful employment status is not relevant
Waged at least 65 but under 70, then the contribution must be made at a time that the recipient spouse meets the work test (see section 2.4).
WSpouse contributions are preserved.
WBoth the contributor and the spouse must be Australian residents for tax purposes when the contribution is made.
Amount of offset
The maximum tax offset is $540. The amount of the offset is calculated as 18% of the lesser of: W$3,000 – [(recipient spouse’s assessable income + RFB + RESCs) – $10,800], and
Wthe amount of the spouse contribution actually made.
3.7. Children and tax deductions for super
A child may claim a tax deduction for contributions they make to their super if the child meets the criteria set out in sections 3.2 and 3.3. Parents cannot claim tax deductions for contributions made to the child’s super fund on behalf of the child. The only exception to this is where the parent is also the child’s employer.
3.8. Government co-contribution for super contributions
The super co-contribution is an Australian Government initiative introduced on 1 July 2003 to assist eligible low to middle income earners in saving for their retirement.
The maximum Government co-contribution is $1 for every $1 of eligible personal super contributions made in a financial year and is subject to an income test.
The maximum co-contribution of $1,000 is reduced by 3.333 cents for every $1 that the taxpayer’s total income exceeds $31,920 in 2010/11 until it reaches or exceeds $61,920.
The matching rate of 100% and the maximum co-contribution that is payable on an individual’s eligible personal non-concessional contribution of $1,000 will be permanently retained. The indexation rate that applies to the income threshold above which the maximum superannuation co-contribution begins to phase down will be frozen at 2009/10 levels for 2010/11 and 2011/12.
Until 1 July 2007, self-employed persons were unable to claim a Government co-contribution. Now, the self-employed may be able to claim a Government co-contribution if they meet the eligibility criteria.
The Government co-contribution does not count toward either the concessional or the non-concessional cap.
Eligibility
A person may be eligible to receive a co-contribution if all of the following criteria are met: WThe person makes one or more eligible personal super contributions (a personal
non-concessional contribution) during the income year.
W10% or more of the person’s total income 1 for the income year is attributable to the following:
Wemployment, where the person is an employee for SG purposes, and/or Wself-employment, where the person is carrying on a business.
Total income 1 = assessable income + reportable fringe benefits + reportable employer super contributions.
WAn income tax return for the person for the income year is lodged. WThe person is less than 71 years old at the end of the income year.
WThe person does not hold a temporary visa under the Migration Act 1958 at any time in the income year or, if they do, is a New Zealand citizen or the holder of a visa to be prescribed in the Regulations.
WThe person’s total income 2 for the income year is less than $61,920.
Total income 2 = assessable income + reportable fringe benefits + reportable employer super contributions – any amounts for which the person is entitled to a deduction as a result of carrying on a business.
Note: You may need to check each fund’s trust deed to confirm that the fund can receive the Government co-contributions.
Assessable income:
WAssessable income is income before deductions.
WDeductions for personal super contributions will reduce taxable income, but will not reduce assessable income.
WSalary sacrifice will reduce assessable income; however, salary sacrifice super
contributions are effectively added back through the inclusion of reportable employer super contributions in the income definitions (refer below).
Reportable employer super contributions
From 1 July 2009, both total income 1 and total income 2 will include a client’s reportable employer super contributions in determining eligibility for and the amount of a co-contribution.
Reportable employer super contributions include the amount of superannuation contributions made on behalf of an individual by their employer or an associate of the employer where the individual has, or might reasonably be expected to have, the capacity to influence the size of the amount and/or the way the amount is contributed so that his or her assessable income is reduced. An example would be salary sacrifice arrangements which typically involve negotiations by an employee with their employer. Employer contributions made to meet the employer’s superannuation obligations under Federal, State or Territory legislation are not RESCs. This includes an obligation under the Superannuation Guarantee (Administration) Act 1992.
Business deductions
The income concept used here is a net concept for individuals who carry on a business, and is designed to ensure that self-employed individuals with high gross business receipts are not arbitrarily exceeding the co-contribution income threshold.
‘Any amount for which a person is entitled to a deduction as a result of carrying on a business’ has the meaning given by the Income Tax Assessment Act 1997 (ITAA 1997). The general principles of s8-1 of ITAA 1997 must be met. That is, a business can deduct any loss or outgoing to the extent that ‘it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income’. There are also specific deductions that certain provisions of the act allow. Division 12 of ITAA 1997 contains a reference table of specific personal and business deductions.
Deductions for personal super contributions are not business deductions The Explanatory Memorandum to the Tax Laws Amendment (Simplified Superannuation) Act 2007 made this specific exclusion to business deductions:
‘Business deductions do not include work-related employee deductions or deductions that are available to eligible individuals (including the self-employed) for their personal superannuation contributions.’ paragraph 7.53
Tip!
A practical guide to business deductions, Income Tax and Deductions for Small Business (NAT 10710) can be found at www.ato.gov.au
Calculating the Government co-contribution
The maximum co-contribution of $1,000 is potentially available to individuals whose total income 2 in 2010/11 does not exceed $31,920 pa. The maximum co-contribution reduces by 3.333 cents for every dollar of total income 2 over $31,920, cutting out at $61,920. A person’s maximum co-contribution limit is calculated as follows:
$1,000 – [((total assessable income + reportable fringe benefits + RESCs – any amounts for which the person is entitled to a deduction as a result of carrying on a business) – $31,920) x 0.03333].
A person’s co-contribution entitlement is the lesser of:
W1.0 x the actual non-concessional contributions made during the financial year, and Wthe person’s maximum co-contribution limit as calculated above.
Tips!
WIf your client is entitled to a Government co-contribution but has reached preservation age and declared retirement or retired due to permanent incapacity or their legal personal representative is authorised to apply on behalf of the deceased person and no accumulation accounts are open to receive their co-contribution, they may apply to the ATO to have the co-contribution paid directly to them. Use the following form available at ato.gov.au
Super co-contribution – request for direct payment (NAT 10759) WThe ATO co-contribution calculator can be found at:
http://calculators.ato.gov.au
WIf your client has closed their super fund to which they made eligible personal contributions and rolled over to another fund, they can notify the ATO of the new fund details for receipt of a co-contribution by completing the following form available at www.ato.gov.au
Super fund nomination form (NAT 8676)
Are children eligible for Government co-contributions?
A child may receive a co-contribution if they meet all the eligibility tests outlined above. Are spouse contributions eligible for Government co-contributions?
No, spouse contributions are not personal contributions made by the member. Government proposal – low income earners government contribution The Government will provide a contribution equal to 15% of concessional contributions made, up to $3,333, for low income earners with an adjusted taxable income of up to $37,000. The maximum Government contribution paid will be $500 (not indexed). This measure will apply to contributions made from 1 July 2012, with the first Government contributions expected in 2013–14.
At the time of writing, legislation to make this effective had not been introduced to Parliament.
3.9. Overview of employer and personal deductible contributions
Employer contribution Personal deductible contribution Conditions
for tax deductibility
W The contribution is to provide super benefits to a person who is an employee of the employer at the time the contribution is made and the fund is a complying super fund. W The employee must be:
W an ‘employee’ as defined by s.12 of the SG Act engaged in producing assessable income of the employer, or
W an Australian resident engaged in the employer’s business. W The contribution is made on or
before 28 days after the end of the month in which the employee turns age 75 (excludes amounts required to be paid under an industrial award, determination or notional agreement preserving State awards). Note: This summary does not address other employment-connected deductions (eg former employees or controlling interest deductions).
W (If applicable) Assessable income and reportable fringe benefits (RFB) + RESCs attributable to holding an office or appointment, performing functions or duties, engaging in work or doing acts or things that result in the person being treated as an employee for SG purposes must be less than 10% of total assessable income and RFB and RESCs for the year. W The contribution must be made on or
before 28 days after the end of the month in which the person turns age 75. W If the person is under age 18 at the
end of the income year, they must have derived income from carrying on a business or employment-related activities in that year.
W The person has given the trustee a valid notice specifying the amount of the contribution intended to claim as a deduction (before the earlier of the time they lodge their tax return for that income year, or the end of the income year following the year the contribution was made), and has received an acknowledgement of the notice from the trustee.
Amount of deduction that may be claimed if the criteria above are satisfied
Up to 100% of the contribution may be claimed as a tax deduction in the year of income it was made, unless one of the following applies: W the contribution forms part of
an ineffective salary sacrifice agreement (may deduct as salary or wages under s.8-1, ITAA 1997) W the employer elects to offset the
contribution against their liability to pay an SG charge after the SG due date (no deduction)
W the contribution is of a transitional termination payment (no deduction) W the employer, or an associate, are
subject to the personal services income (PSI) rules (deduction generally limited to amount required to ensure no SG shortfall), or W the contribution is paid to a
non-member spouse to satisfy an entitlement under the Family Law Act 1975 (no deduction).
Up to 100% of the contribution may be claimed in the year of income it was made, unless one of the following applies: W the contribution relates to the
small business capital gains tax (CGT) retirement concession and the individual was under age 55 (no deduction)
W the contribution is a transitional termination payment (no deduction), or W when the notice was given, the fund
had begun to pay a pension during the year based in whole or part on the contribution (no deduction), or W when the notice was given, the fund
no longer held the contribution (no deduction).
Deductibility of interest on loan to pay a contribution
If the criteria for tax deductibility above are satisfied, any associated financing cost is deductible.
Any associated financing costs are not deductible (irrespective of whether the contribution is deductible).
Employer contribution Personal deductible contribution Ability to
create a tax loss via contribution
Yes No
Rules for accepting contribution for SIS purposes
Mandated (eg SG, award) = accepted at any age
Non-mandated: To age 65 = no work test Age 65-75 (+28 days after end of month turning 75) = employee must satisfy work test (ie gainfully employed for at least 40 hours over 30 consecutive days in the financial year) There is no restriction to accepting a contribution if no tax file number (TFN) is quoted, but a no-TFN contributions tax of 31.5% may apply.
To age 65 = no work test Age 65-75 (+28 days after end of month turning 75) = must satisfy work test of being gainfully employed for at least 40 hours over 30 consecutive days in the financial year. Contributions are refunded where the amount exceeds the fund-capped contribution limits and/or the member fails to quote a TFN. Contributions must be refunded within 30 days if no TFN is subsequently quoted within that time.
Treatment of contribution for tax purposes
An employer contribution is a concessional contribution (irrespective of whether it is tax deductible) and counts towards the member’s concessional contributions cap. The contribution is included in the assessable income of the fund and is taxed at a maximum of 15%. If the contribution exceeds the member’s annual concessional contributions cap of $25,000 ($50,000 if aged 50+ until 30 June 2012), a further 31.5% tax applies. Excess concessional contributions also count towards the member’s non-concessional contributions cap.
Returned contributions that have been, or can be, deducted are treated as assessable income unless the payment is received as a superannuation benefit.
A personal member contribution covered by a valid notice to claim a tax deduction is a concessional contribution and counts towards the member’s concessional contributions cap.
If a tax deduction is not claimed or is subsequently denied by the tax office or the amount is reduced under a notice, that contribution is non-concessional unless it is an employment termination payment that is a directed termination payment (refer note below table). A contribution covered by a valid notice is included in the assessable income of the fund (unless the amount is subsequently varied) and taxed at a maximum of 15%. If the contribution exceeds the member’s annual concessional contributions cap of $25,000 ($50,000 if aged 50+ until 30 June 2012), a further 31.5% applies. Excess concessional contributions count towards the member’s non-concessional contributions cap.
Ability to make an in specie contribution
Yes
Fringe benefits tax (FBT) is not payable on in specie contributions made to an employee on or after 1 July 2007. Caution: CGT and stamp duty may apply (but any assessable capital gains may be offset by deductibility of the contribution). Trustees must also ensure that they do not breach the related party acquisition and/or in-house asset rules.
Yes
Caution: CGT and stamp duty may apply (but assessable capital gains may be offset by deductibility of the contribution). Trustees must also ensure that they do not breach the related party acquisition and/or in-house asset rules.
Note: A contribution for tax purposes does not include a rollover super benefit or super lump sum paid from a foreign super fund. A directed termination payment (DTP) is treated as a personal member contribution for SIS purposes. For more information, refer to sections 15.15 and 15.16.
4. Contributions caps and taxation
of contributions
There is generally no limit on the amount of contributions which can be made to superannuation. There are, however, limits on the amount of contributions which can be made and still receive concessional tax treatment. These limits are known as contributions caps. The current restrictions to contributing to super were put in place from 1 July 2007. There are two ‘contributions caps’ which restrict the amount that may be contributed to super by, or on behalf of, an individual within a financial year and once either of those limits is exceeded an individual may incur excessive tax.
4.1. Contributions caps – summary table
Contributions caps limit how much may be contributed to an individual’s super in a particular financial year without the member incurring excessive contributions tax. The caps apply to the individual. For example, if a member has multiple employers,
contributions from all employers will be totalled to count against the member’s concessional cap. The table below summarises the contributions caps for individuals for 2010/11 (these are unchanged from 2009/10).
Further detail on each contributions cap follows this table. Contributions cap Age of member
Concessional contributions cap for 2010/11
Under age 50 on 30/6/11:
$25,000
50 or over on 30/06/11:
$50,000
Non-concessional contributions cap for 2010/11
Under age 65 at any time during 2010/11: W $150,000 or
W up to $450,000 over a three-year period under bring forward provision (see section 4.4)
Age 65 or over for all of 2010/11:
$150,000
4.2. Concessional contributions cap
For a description of contributions that count toward an individual’s concessional cap, see section 4.3.
A person’s concessional cap for 2010/11 will depend on their age. Concessional cap – under age 50
For people under the age of 50 on the last day of the financial year, the concessional contributions cap is $25,000 (for 2010/11). From 1 July 2012, this will be the cap for people of all ages. This cap is indexed annually and rounded down to the nearest $5,000. See section 4.6 for more information on indexing.
Transitional concessional cap – age 50 or over
There is a transitional period* between 1 July 2007 and 30 June 2012. Between 1 July 2009 and 30 June 2012, if a person is age 50 or over on the last day of a financial year within the transitional period, the transitional concessional contribution cap for that year is $50,000. This cap is not indexed.
From 1 July 2012, the concessional cap will be $25,000 (indexed) for taxpayers of all ages.
* Note: Between 1 July 2007 and 30 June 2009, the transitional concessional cap was $100,000 pa.