Types of contributions

There are two types of Contributions you can make to your SMSF.  Each Contribution Type and the respective tax payable on that Contribution is detailed below.

Contribution Type 1:  Non Concessional Contributions

Personal Contributions made into a SMSF from after tax income on which no tax deduction is claimed are known as Non Concessional Contributions.  Non Concessional Contributions are essentially personal contributions made into your SMSF from your own personal Bank Account and not from your Employer.  No tax is ever payable on a Non Concessional Contribution made into a SMSF either when the monies are contributed into the SMSF or when monies are accessed later on retirement.

Contribution Type 2:  Concessional Contributions

Concessional Contributions are contributions where a tax deduction has been claimed for the contribution, either by the Member or by an Employer. Concessional Contributions include the following subsets of contribution types:

Mandated Employer Contributions
Salary Sacrifice Contributions
Personal Contributions satisfying the 10% Rule.

For more details on Concessional Contributions click here.  Tax is payable on Concessional Contributions made into a SMSF at the rate of 15%.

Excess Non Concessional Contributions

It should be noted that there are Contributions Limits for Non Concessional Contributions as detailed here.  It is important never to breach these limits otherwise penalty taxes apply.  That is to the extent you make a Non Concessional Contribution exceeding your Non Concessional Contribution limit your SMSF must return the excess contribution to the contributing Member within 30 days of receiving the contribution.  To the extent that this does not occur your SMSF will be liable for Excess Contributions Tax.  Excess Contributions over the Non Concessional Contribution Limit will be subject to Excess Contributions Tax of 46.50%.  This can result in double taxation, with an effective tax rate of 93%!   To avoid this disastrous situation it is vital that you keep track of all your Non Concessional Contributions.  Excess Non Concessional Contributions should be avoided at all costs. 

Excess Concessional Contributions

It should be noted that there are Contributions Limits for Concessional Contributions as detailed here.  It is important never to breach these limits otherwise penalty taxes apply.  That is Excess Contributions over the Concessional Contribution limit will be subject to Excess Contributions Tax of 46.50% (made up of the 15% Contributions Tax plus a Penalty Tax rate of 31.50%).  This can result in double taxation, with an effective tax rate of 93%!  To avoid this disastrous situation it is vital that you keep track of all your Concessional Contributions.  Excess Concessional Contributions should be avoided at all costs. 

When is Tax Payable

With large Superfunds when an Employer makes a Concessional Contribution into that Fund, it immediately withdraws the tax on the Contribution and forwards it to the ATO.  So if you contribute $1,000 per month in Super Contributions only $850 is invested as the 15% tax of $150 is immediately sent to the ATO.  With a SMSF when a Concessional Contribution is made to your SMSF, you do not have to withdraw and remit the tax at that time.  In fact the tax is only payable on the completion and lodgement of the SMSF annual tax return which can be up to 11 months after the end of the Financial Year!  This means that you can invest the tax you would otherwise pay on the Contributions and derive interest on that tax amount, before it needs to be paid to the ATO.  It is noted in the first year your SMSF is setup the SMSF must lodge its tax return by February 28 following the end of the Financial Year.  In the second year and future years the SMSF must lodge its tax return by May 15 following the end of the Financial Year.  Whilst it doesn't sound much the savings can be amazing.  In fact the savings can exceed $1,000 annually and add tens of thousands to your Final Super Payout.  For further details see our "Free Money" Article here.