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 Contributions cap, the ATO will contact you by sending you a Determination letter 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.
To select this option, you need to make an election using ATO online services or complete the excess non-concessional contributions election form and send it to the ATO. Generally, you have 60 days after the date of issue of the determination to make an election.
Once the ATO processed your election, they will send a release authority form to the superfunds you nominated. You will have 20 business days to action a release authority which includes paying the amount stated in the release authority and completing the release authority to send it back to the ATO. Importantly the amount should only be released after the release authority is received.
Please note that a copy of the completed release authority is required to be provided to our office via the annual checklist for audit purposes.
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%. The excess non-concessional contributions tax will need to be paid from your super.
This can result in double taxation, with an effective tax rate of up to 94%! To avoid this situation, it is vital that you keep track of all your Non Concessional Contributions.
To select this option, you need to make an election using ATO online services or complete the excess non-concessional contributions election form and send it to the ATO. Generally, you have 60 days after the date of issue of the determination to make an election.
Once the ATO processed your election, they will send a release authority form to the superfunds you nominated. You will have 20 business days to action a release authority which includes paying the amount stated in the release authority and completing the release authority to send it back to the ATO. Importantly the amount should only be released after the release authority is received.
Please note that a copy of the completed release authority is required to be provided to our office via the annual checklist for audit purposes.
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 added to your personal taxable income and taxed at your personal marginal tax rate with a 15% tax offset to account for the contributions tax already paid by your SMSF. You will need to pay this additional tax from your personal account. If you exceeded your Concessional Contribution Limit prior to 1 July 2021, you would also need to pay an interest charge calculated by the ATO known as the excess concessional contributions (ECC) charge.
To the extent your Concessional Contributions exceeded your Concessional Contribution Limit, the ATO will contact you by sending you a Determination letter and a Notice of Assessment after the lodgement of your SMSF Annual Return. You will be asked to choose whether you want to release the Excess Concessional Contributions from your SMSF. You have the following options:
Option 1 Leave the excess concessional contributions in your SMSF
If you choose this option, you are choosing not to release any amount from your SMSF. The excess concessional contributions will be counted towards your non-concessional contributions cap. We caution that this may in turn cause you to exceed your non-concessional contributions cap. For more information about excess non-concessional contributions, please click here.
Option 2 Release up to 85% of the excess concessional contributions from your SMSF
If you choose to release your Excess Concessional Contributions from your SMSF, the amount released from your SMSF can be used to help pay the tax on your excess concessional contributions and the released amount will not count towards your non-concessional contributions cap.
To select this option, you need to make an election specifying the amount you wish to release via ATO online services or complete the excess concessional contributions election form and send it to the ATO. Generally, you have 60 days after the date of issue of the determination to make an election and the election is irrevocable.
Once the ATO processed your election, they will send a release authority form to the superfunds you nominated. You will have 20 business days to action a release authority which includes paying the amount stated in the release authority and completing the release authority to send it back to the ATO. Importantly the amount should only be released after the release authority is received.
Please note that a copy of the completed release authority is required to be provided to our office via the annual checklist for audit purposes.
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.
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