A question that is often asked is “Can I make a contribution to my super fund?”. This is the wrong question to ask. In fact, there are two questions that should be asked in relation to a superannuation contribution:
- Can the trustee of the super fund accept the contribution?
- If the trustee of the super fund can accept the contribution, what are the contribution cap consequences of it being accepted?
The first question is the concern of the trustee of the superannuation fund and the relevant rules are contained in the SIS1 Regulations. Under these rules, the trustee of a superannuation fund does not need to consider the contribution cap consequences for the member.
Whilst the first question is also important to the member, as it governs whether the contribution by or on behalf of the member can be accepted, the member is also concerned about the contribution cap consequences of a contribution which has been accepted. Contribution cap rules and the taxation consequences where those relevant caps have been exceeded, are contained in the Income Tax Assessment Act 1997 (Tax Act 97) and only apply to the individual member, not the trustee of the superannuation fund.
Trustee contribution acceptance rules
SIS Regulation 7.04 sets out the rules for the trustee of a regulated superannuation fund to accept a contribution in relation to a member. In summary, a trustee can accept the following contributions:
|If the member is aged:||The fund may accept:|
|Under 67||* All contributions (note Downsizer contributions can only be made from age 65)|
|67 to 74||* Mandated employer contributions, e.g. super guarantee|
* Downsizer contributions
* Member and employer non-mandated contributions where the member satisfies the work test2 or they can use the recently retired rule
|75+||* Mandated employer contributions|
* Downsizer contributions
Contribution cap consequences
The Tax Act 97 sets out which contributions count towards either the concessional cap or the non-concessional cap, or whether there is a separate cap or no cap at all. Where a contribution exceeds an applicable cap, there will be personal income tax consequences for the member.
Whether the member has exceeded a contribution cap and has additional tax assessed, does not affect whether or not the trustee of the superannuation fund could have accepted the contribution in the first place. The member may be able to release monies in relation to a contribution that has exceeded a cap, but again, this does not affect the trustee’s ability to have accepted the contribution. The determination of a contribution exceeding a particular cap under the Tax Act 97, occurs well after the trustee has assessed that they were permitted to accept the contribution in accordance with the SIS regulations.
Common contributions and their relevant caps, are as follows:
|Concessional cap||Non-concessional cap||Other cap or no cap|
* Member deductible
* Allocation from reserve (exception does not apply)
|* Member non-deductible|
* Spouse contribution
* Rollover foreign super (excluding assessable amount)
* CGT cap contribution
* Personal injury
* Government co-contribution
Acceptance rules v cap consequences – examples
Harrison is aged 72. During the 2019/20 income year he was gainfully employed for at least 40 hours in 30 consecutive days, that is, he satisfied the ‘work test’. He makes a contribution of $100,000 to his SMSF, which is deposited into the fund’s bank account.
Sometime later, the SMSF’s 2018/19 financials are finalised and it is realised that Harrison’s total superannuation balance at 30 June 2019 was $1.63m. This means that his non-concessional cap for 2019/20 was zero. Consequently, his entire personal contribution of $100,000 made in 2019/20, is in excess of his non-concessional cap.
It is questioned whether:
- The contribution should be returned, as Harrison could not have made the contribution as his non-concessional cap for 2019/20 was zero; or
- The fund can return the contribution as Harrison made a mistake in making the contribution.
Unfortunately, for Harrison, there is no good news. The trustee of the SMSF was able to accept the contributed as he is aged 67 to 74 and had satisfied the ‘work test’. Further, Harrison has not made a mistake, but he definitely has regrets about not confirming his prior 30 June total superannuation balance before making the contribution.
The ATO has noted that contributions generally cannot be returned to a member because:
- they regret making the contribution; or
- they or their agents made an error in their decision to contribute.
Contributions may only be refunded in circumstances tightly prescribed by legislation.3
However, let’s just make one change to our Harrison scenario. Let’s assume that he did not satisfy the ‘work test’ during 2019/20.
In these circumstances the SMSF trustee could not have accepted the contribution. In fact, SIS regulation 7.04(4) states that where a fund receives an amount from or on behalf of a member that cannot be accepted in accordance with the contribution acceptance rules, the amount must be returned within 30 days of becoming aware that the amount was received in a manner not permitted under the regulation. This allows the SMSF to return the $100,000 to Harrison and further, the amount will not be treated as a contribution, with no excess non-concessional cap consequences.
Where the SMSF held the $100,000 at 30 June 2020 (yet to be returned):
- The amount would not be disclosed in the SMSF’s 2019/20 financial statements as a contribution;
- The amount would not be included in the member’s balance;
- The amount would be disclosed on the Statement of Financial Position as a liability – “Amount to be returned” (or similar words);
- The amount would not be disclosed in the Member’s section of the SMSF annual return as a contribution. It will be included in the assets and liabilities section (H), item 16Y.
Process for contributions – acceptance and cap consequences
Taking the approach of considering whether a superannuation fund trustee can accept a contribution, rather than whether a member can make a contribution, will remove the incorrect application of the contribution caps in the contribution acceptance process. Of course, a member should consider the contribution cap consequences of a contribution being accepted prior to actually making the contribution – once accepted by the trustee, the contribution cap assessment is consequential.
When assessing contributions, whether they can be accepted and what the effect of the relevant contribution cap is, a simple two step process can be applied:
Step 1 – Assess if the trustee of the fund could have accepted the contribution in accordance with SIS regulation 7.04;
Step 2 – For the member and for contributions that met the contribution acceptance rules, assess which contribution cap applies, per the Tax Act 97 and assess whether the relevant cap has been exceeded. If so, the individual member (not the fund) will be issued with an excess contribution cap determination and assessment.
This information is provided by Accurium Pty Limited ABN 13 009 492 219 (Accurium). It is factual information only and is not intended to be financial product advice, legal advice or tax advice, and should not be relied upon as such. The information is general in nature and may omit detail that could be significant to your particular circumstances. The information is provided in good faith and derived from sources believed to be accurate and current at the date of publication. While all care has been taken to ensure the information is correct at the time of publishing, superannuation and tax legislation can change from time to time and Accurium is not liable for any loss arising from reliance on this information, including reliance on information that is no longer current. We recommend that you seek appropriate professional advice before making any financial decisions.