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.

Eligibility to make Non Concessional Contributions

If you are aged between 65 and 74 you can only make Non Concessional Contributions into your SMSF if you pass a Work Test.  

Passing the Work Test when aged between 65 and 74

The "Work Test" requires that an Individual is "Gainfully Employed" for at least 40 hours in a period of not more than 30 consecutive days in that Financial Year.  The term "Gainfully Employed" is defined to mean employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.  Gain or reward essentially means that you are remunerated in return for the personal services provided. (eg as a salary, business income, bonuses and commissions that are fully documented and declared for tax purposes).  It does not include passive investment income (eg rental income or dividend income).  In addition volunteers are generally not considered to be gainfully employed as they do not receive remuneration for their services.  You should also take care if you involve family and friends in an attempt to satisfy the definition of 'gainful employment'.  If you assist another family member by say, babysitting or gardening, the particular circumstances surrounding the arrangement will be critical.  For example, if you look after your grandchildren while their parents are on holiday, it is likely that your motive for doing so would be for personal or domestic reasons rather than to derive financial gain as per a normal employer / employee arrangement.  In this case, even if you are paid for your services, the definition of gainful employment may not be satisfied. 

What happens if you contribute without passing the Work Test?

If you are aged between 65 and 74 and contribute to your SMSF without first meeting the work test, the amount must be returned to you by your SMSF within 30 days.  If the 'ineligible' amounts are not returned within this time, your SMSF will have breached the superannuation contribution rules resulting in compliance issues that will be reported to the ATO in your SMSF Annual Audit.

Maximum Non Concessional Contributions Allowed

If you are aged between 65 and 74, a limit of $150,000 per annum per Member applies for Non Concessional Contributions made into your SMSF. 

3 Year Bring Forward Rule does not apply

The "3 Year Bring Forward Rule" allowing you to bring forward up to two years of contributions and invest up to $450,000 in one year is not available to persons above age 65.  However where you were 64 on 1 July in a particular Financial Year and turn 65 during the Financial Year you may be able to implement the "3 Year Bring Forward Rule" if a contribution above $150,000 is made in that year.  For more on this strategy click here.

No Tax on Non Concessional Contributions

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 at retirement.

All Non Concessional Contributions are made into the ANZ V2 Plus Account

All Non Concessional Contributions must be deposited into the ANZ V2 Plus Account established for your SMSF.  There is only one ANZ V2 Plus Account established for your SMSF and all Members must deposit Contributions into the same ANZ V2 Plus Account.  It is unnecessary and administratively inefficient to have a separate ANZ V2 Account for each Member.

How ESUPERFUND tracks Non Concessional Contributions

Each Contribution and Contribution Type must be allocated to a specific Member as part of the annual compliance process.  This is a legal requirement.  Typically the Member making the Contribution and the Contribution Type will be detailed on the ANZ V2 Plus Bank Statement.  To the extent that the narration on the Bank Statement is insufficient, you will be asked to confirm on whose behalf the contributions have been made and the Contribution Type using an annual checklist we send to all SMSF clients each year in July.  You do not need to send us confirmation at the time each Non Concessional Contribution is made. This information is only required annually and we will guide you through the process and prompt you when information is required from you.  For more visit our Q&A section here.

Excess Non Concessional Contributions

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.