Non Concessional Contributions
Personal Contributions made into an 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
Once you reach age 75, you cannot make Non Concessional Personal Contributions to your SMSF regardless of whether you satisfy the Work Test. However If you are turning 75 during a Financial Year you can make a Non Concessional Contribution to your SMSF on or before the day that is 28 days after the end of the month in which you turn 75. In this case you can still only contribute if you pass a Work Test or meet the Work Test Exemption criteria, and subject to the $1.6 million eligibility threshold.
Work Test Exemption Criteria (WTE)
From 1 July 2019, if you are aged between 65 and 74 with a total superannuation balance below $300,000 as at the previous 30 June, you will be able to make voluntary contributions for 12 months from the end of the financial year in which you last met the work test – this is known as the work test exemption.
To meet the work test exemption criteria, you must have:
- satisfied the work test in the financial year preceding the year in which you made the contribution
- a total super balance of less than $300,000 at the end of the previous financial year
- not previously utilised the work test exemption.
In terms of the amount of money that could be contributed, the existing concessional contribution cap and non-concessional contribution cap will continue to apply.
Passing the Work Test when Over 65
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 (e.g. as a salary, business income, bonuses and commissions that are fully documented and declared for tax purposes). It does not include passive investment income (e.g. 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.
$1.6 million Eligibility Threshold
From 1 July 2017, if your total super balance is $1.6 million or more at 30 June of the previous year, you are not eligible to make Non Concessional Contributions.
What happens if you contribute without being eligible?
If you are 75 or over and contribute to your SMSF without being eligible, 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 turning 75 during a Financial Year, you can make a Non Concessional Contribution to your SMSF on or before the day that is 28 days after the end of the month in which you turn 75 as detailed above. The Non Concessional Contributions limit for a given Financial Year is as follows:
||Amount of cap
||$100,000 per member per annum
||$100,000 per member per annum
||$100,000 per member per annum
Bring Forward Rule does not apply
The "Bring Forward Rule" allowing you to bring forward up to two years of contribution is not available to persons aged over 75.
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 Transaction Bank Account
All Non Concessional Contributions must be deposited into the Transaction Bank Account established for your SMSF. There is only one Transaction Bank Account established for your SMSF and all Members must deposit Contributions into the same Transaction Bank Account. It is unnecessary and administratively inefficient to have a separate Transaction Bank 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 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 by 31 August. 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 information on Frequently Asked Questions about the Non Concessional Contributions, please click here.
Excess Non Concessional Contributions
To the extent you make a Non Concessional Contribution exceeding your Non Concessional Contribution Limit, the ATO will contact you after the lodgement of your SMSF Annual Return. You will be asked to choose how your Excess Non Concessional Contributions are taxed. You have the following options:
Option 1 Release the excess amounts from your SMSF
If you choose this option, you are electing to withdraw all your Excess Non Concessional Contributions and 85% of associated earnings from your SMSF.
In this case, the Excess Non Concessional Contributions will NOT be subject to Excess Non Concessional Contributions tax.
However the full associated earnings amount stated in your determination is added to your assessable income and taxed at you marginal tax rates subject to a 15% tax offset.
ATO will send a release authority form to the superfunds you nominated. From 1 July 2018, you will have 10 working days to action a release authority.
Option 2 Pay Excess Non Concessional Contributions tax on the excess amount
If you choose not to release your Excess Non Concessional Contributions from your SMSF, the Excess Contributions over the Non Concessional Contribution Limit will be subject to Excess Contributions Tax at the highest marginal tax rate of 47%.
Excess Contributions Tax can result in double taxation, with an effective tax rate of up to 94%! To avoid this disastrous situation, it is vital that you keep track of all your Non Concessional Contributions.