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 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 satisfy all of the following eligibility criteria:
1. $1.6 million Eligibility Threshold
The $1.6 million Eligibility Threshold was introduced from 1 July 2017. If you have a total superannuation balance of $1.6 million or more on 30 June of the previous Financial Year you are not eligible to make Non Concessional Contributions regardless of everything else.
2. Work Test Related Rules
In addition to meeting the $1.6 million Eligibility Threshold, you may also need to meet a Work Test or be eligible for the Work Test Exemption (WTE) in order to make Non Concessional Contributions into your SMSF, depending on your age.
Before 1 July 2020
Before 1 July 2020, the cut-off age for Work Test related rules is 65. If you are aged between 65 and 74, you will need to meet a Work Test or be eligible for the Work Test Exemption in order to make Non Concessional Contributions into your SMSF.
After 1 July 2020
From 1 July 2020, the cut-off age for Work Test related rules is increased to 67. This means if you are aged between 65 and 66 and your total superannuation balance on 30 June of the previous Financial Year did not exceed $1.6 million, you are able to make Non Concessional Contributions into your SMSF without having to pass a Work Test or meet the Work Test Exemption criteria.
If you are aged between 67 and 74, you are required to meet a Work Test or be eligible for the Work Test Exemption in order to make Non Concessional Contributions into your SMSF.
Definition of Work test
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.
Definition of Work Test Exemption (WTE)
The Work Test Exemption (WTE) was introduced from 1 July 2019. If you meet certain criteria, 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 a total superannuation balance of less than $300,000 as at 30 June of the previous Financial Year;
- have satisfied the Work Test in the Financial Year preceding the year in which you made the contribution;
- have not previously utilised the Work Test Exemption;
- be allowed to make voluntary contributions based on your age (noting voluntary contributions are not allowed when you reach age 75).
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.
What happens if you contribute without passing the Work Test or without meeting the Work Test Exemption Criteria?
If you are required to pass the Work Test or meet the Work Test Exemption Criteria but you contribute to your SMSF without doing so, 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's annual audit.
Maximum Non Concessional Contributions Allowed
If you are aged between 65 and 74, 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 contributions 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 Bring Forward Rule if a contribution above the Maximum Cap is made in that year, subject to the $1.6 million Eligibility Threshold and Work Test related rules. For more information on the Bring Forward Rule, please click here.
No Tax on Non Concessional Contributions
All Non Concessional Contributions must be deposited into a Bank Account established for your SMSF. No tax is ever payable on a Non Concessional Contribution made into an SMSF either when the monies are contributed into the SMSF or when monies are accessed later on at retirement.
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 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 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 the determination is added to your assessable income and taxed at your 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%. It is vital that you keep track of all your Non Concessional Contributions.
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