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 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. 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 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 where a tax deduction is claimed
For more information on Concessional Contributions, please click here. Tax is payable on Concessional Contributions made into an 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.
If you go over the non-concessional cap, 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%. This 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.
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.
If you exceed your Concessional Contribution Limit, the Excess Contributions over the Concessional Contribution Limit will be taxed at your actual marginal tax rate, plus an interest charge calculated by the ATO (as would happen for income tax paid late to the ATO), rather than the top marginal tax rate. If you're already on the top marginal tax rate, you only need to pay the interest charge.
To avoid the above disastrous situation it is vital that you keep track of all your Concessional Contributions, noting that Contributions are regarded as being paid at the time they are received by the fund.
When is Tax Payable
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.