From 1 July 2022 there are changes to the rules for a superannuation trustee accepting a contribution from or on behalf of a member. There are also changes to the rules for claiming member contributions as an income tax deduction in the member’s income tax return and to the contribution caps. In this article we the changes to the superannuation and income tax law.
Contribution acceptance rules
The rules that permit a superannuation trustee to accept a contribution from or on behalf of a member sit within the SIS regulations and specifically regulation 7.04. The contribution acceptance table within this regulation will be as follows from 1 July 2022:
|Item||If a member…||the fund may accept contributions made in respect of the member that are…|
|1||is under 60||(a) employer contributions; or|
(b) member contributions
|2||is not under 60, but is under 75||(a) employer contributions; or|
(b) member contributions (including downsizer contributions)
|3||is not under 75||(a) mandated employer contributions; or|
(b) downsizer contributions
This table is modelled on the repealed table (that applies in relation to contributions up to 30 June 2022), but simplifies the contributions acceptance rules for each of the age groups, removes the work test requirements and, in table items 2 and 3, provides that a regulated superannuation fund may accept downsizer contributions from a member who is 60 years or more (the eligible age for a downsizer contribution is reduced from 65 to 60 as from 1 July 2022).
There is also an amendment to the regulations to make it clear that an SMSF trustee may also accept contributions made in respect of a member, and received on or before the day that is 28 days after the end of the month in which the member turns 75, that are:
(a) employer contributions other than mandated employer contributions; or
(b) member contributions other than downsizer contributions.
These changes means that from 1 July 2022 a superannuation trustee will no longer be required to ascertain if a member, aged 67 to 74, satisfies the ‘work test’, including the $300,000 total superannuation balance work test exemption, prior to accepting a contribution, other than a mandated employer superannuation contribution or a downsizer contribution.
However, there are other contribution acceptance rules that the superannuation trustee still needs to comply with, being:
- Member’s tax file number (TFN) – where a member does not provide their TFN to the superannuation trustee, the fund cannot accept member contributions. This would be expected to be an uncommon occurrence in an SMSF, considering the relationship between members and the SMSF trustee(s). Non quoting of a member’s TFN can also mean additional tax on contributions1.
- Contributions from a non-related employer via SuperStream – An SMSF will be required to have an Electronic Service Address (ESA) to receive associated SuperStream data for contributions received from a non-related employer in respect of an SMSF member. The contribution must also be made electronically to the SMSF.
- An SMSF trustee can also accept a contribution where the trustee(s) is reasonably satisfied that the contribution is respect of a certain period, as outlined in the table in sub-regulation 7.04(1), for which the trustee could accept the contribution, despite the contribution actually being made after that period, when the trustee could not accept the contribution2.
- An SMSF trustee can also accept a contribution, to the extent that the amount does not exceed the member’s CGT cap amount in relation to an earnout arrangement, where the related CGT event occurred during a period for which the SMSF trustee could have accepted the contribution3.
- In-specie contributions – generally, an SMSF trustee must not intentionally acquire an asset from a related party4. However, there are exceptions to this prohibition, with the significant exceptions being: listed securities and ‘business real property’5.
Return of contributions
An SMSF trustee must return contributions to the contributor in the following circumstances6:
- The contribution is a member contribution and the member has not quoted their tax file number within 30 days of the amount being received by the trustee; or
- The amount was received in a manner that is inconsistent with table in SIS sub-regulation 7.04(1).
The contribution must be returned to the contributor within 30 days of the trustee becoming aware that they should not have accepted the contribution. For an SMSF, the ATO considers that the trustees of an SMSF (or directors of a corporate trustee) are aware that a contribution is in breach of the contribution acceptance rules when they become aware of the contribution itself. This would generally be on the day the contribution is received7. Further, the ATO view is that the 30-day requirement obliges funds to return contributions without delay. The trustee remains obliged under SISR sub-regulation 7.04(4) to return the amount, even if more than 30 days has elapsed since the trustee(s) became aware of the obligation9.
Once it is determined that the superannuation trustee can accept a contribution in respect of a member, consideration turns to the contribution cap consequences of the contribution for that member. The purpose of contribution caps is to restrict the amount of capital that an individual can transfer to a concessionally taxed superannuation fund. A member whose total contributions in an income year exceed the relevant contribution caps may be liable for additional tax on the amount that exceeds the relevant contribution cap.
Superannuation contributions will generally be subject to one of the following contribution caps:
- Concessional contribution cap;
- Non-concessional contribution cap.
The concessional and non-concessional caps for the 2021-22 income year are:
|Concessional contribution cap||Non-concessional contribution cap|
The concessional contribution cap indexes in increments of $2,500 in line with average weekly ordinary time earnings (AWOTE). The last indexation occurred on 1 July 2021 when the concessional contribution cap increased from $25,000 to $27,500.
From 1 July 2018, members can make ‘carry-forward’ concessional super contributions if they have a total superannuation balance of less than $500,0008. Members can access their unused concessional contributions caps on a rolling basis for five years. Amounts carried forward that have not been used after five years will expire9. However, whilst the unused concessional contribution rule applies from 1 July 2018, the first income year that an individual could have applied any unused concessional contributions was the 2019–20 income year.
The non-concessional contribution cap amount is a 4 times multiple of the concessional contribution cap10 and will increase each time the concessional contribution cap is indexed. Consequently, from 1 July 2021 the non-concessional cap is $110,000.
From 1 July 2022 a person has access to the bring forward arrangement where they are under age 75 at any time in the income year. This bring forward cut-off age was increased from under age 67 to under age 75 from 1 July 2022. Entitlement to bring forward and the amount is dependent upon the individual’s total superannuation balance at the prior 30 June to the relevant income year, as follows11:
|Total superannuation balance||Contribution and bring forward available|
|Less that $1.48 million||Access to $330,000 cap (over 3 years)|
|From $1.48 million up to less than $1.59 million||Access to $220,000 cap (over 2 years)|
|From $1.59 million up to less than $1.7 million||Access to $110,000 cap (no bring-forward period, standard non-concessional cap applies)|
|At least $1.7 million||Nil – no non-concessional cap available|
Bring forward rule for individual approaching age 75
The combination of the removal of the work test from the contribution acceptance rules in the superannuation law and the increase in the cut-off age for the bring forward arrangement provides an opportunity for an individual approaching age 75 to effectively utilise their non-concessional contribution cap for income years they are of an age for which the superannuation fund trustee(s) could not otherwise have accepted such contributions.
Kevin is turns 75 in May 2023. He has a prior 30 June 2022 TSB of $1million. Kevin makes a personal non-concessional contribution of $330,000 in April 2023, when he is still age 74. This thus utilising his non-concessional cap from 2023-24 and 2024-25, when his age is 75 and 76. There are two questions that need to be answered for this scenario:
- Can the superannuation fund trustee accept the contribution from Kevin?
- What contribution cap will apply?
Dealing with the question of contribution acceptance, as Kevin is aged 74 at the time the contribution has been received, there are no tests that need be applied12. Consequently, the superannuation fund trustee can accept the $330,000 personal contribution from Kevin.
Turning to the second question of the contribution cap, as Kevin was under age 75 at some time in the 2022-23 income year, he can utilise the bring forward arrangement, subject to his prior 30 June 2022 total superannuation balance. Given his prior 30 June 2022 total superannuation balance is under $1.48million, Kevin can bring forward his non-concessional cap for the next two income year giving him a total non-concessional cap for 2022-23 of $330,000. Consequently, Kevin has not exceeded his non-concessional cap.
If Kevin made a contribution in either of the following 2023-24 or 2024-25 income years, during a period that was 28 days after the end of the month he attains age 75, the superannuation fund trustee could not accept the contributions, unless they were Downsizer contributions. For example:
Kevin made a personal non-concessional contribution of $280,000 in April 2023. The superannuation fund could accept the contribution and it would be well within his non-concessional cap of $330,000 under the bring forward arrangement. However, if could not utilise the balance of the bring forward cap, being $50,000 in 2023-24 and 2024-25 as during these years, the superannuation fund trustee(s) could not accept personal contributions as it would be outside 28 days after the end of the month, he turned 75, being after 28 June 202313.
Some contributions have a separate or no cap
Certain contributions either do not have a contribution cap or are subject to a special contribution cap, as follows:
- Contributions that are not subject to a contribution cap:
- Government co-contributions;
- Low income superannuation tax offset (LISTO) contributions;
- Contributions from structured settlements or orders for personal injuries.
- Contribution that are subject to a special contribution cap:
- Downsizer contributions
- Contributions made by an eligible person that arise from a capital gains event or from a ‘CGT look-through earnout right’ that also meets the requirements of either the:
- CGT small business retirement exemption; or
- CGT small business 15-year exemption;
- Contribution of previously received COVID-19 temporary early release superannuation benefit payment
Claiming an income tax deduction for personal contributions
From 1 July 2021 individuals aged 67 to 74 years who claim a deduction for personal superannuation contributions will be required to satisfy a ‘work test’. Whilst the ‘work test’ is basically the same as the ‘work test’ that applied in the contribution and acceptance rules in the SIS regulations, up until 30 June 2022, it is not required to be assessed by the superannuation trustee. That is, whether a member, aged 67 to 74 satisfies or not the ‘work test’, to enable then to claim an income tax deduction for a personal contributions, is irrelevant from a contribution acceptance perspective.
However, failing to satisfy the work test, where required, for an income tax deduction claim, will mean that the non-concessional cap applies, rather than the concessional cap. This may result in additional tax.
Joey retired when he turned 65 in May 2018. He has not been gainfully employed since. Excited about the removal of the ‘work test’ from the contribution acceptance rules from 1 July 2022, Joey makes the following contributions in 2022-23 income year:
- July 2022 – $20,000, for which he intends to claim a personal income tax deduction; and
- September 2022 – $330,000, Joey’s 30 June 2022 total superannuation balance is $650,000.
In Joey’s excitement he has not realised that to claim the $20,000 as a personal income tax deduction and have the amount count towards his concessional cap, he needed to satisfy the ‘work test’, that is, being ‘gainfully employed’ for at least 40 hours in 30 consecutive days in the 2022-23 income year. Not satisfying the ‘work test’ means that:
- The $20,000 will count towards his non-concessional cap;
- The total contributions in 2022-23 that will count towards his non-concessional cap is $350,000;
- Joey has exceeded his non-concessional cap by $20,000.
Joey requests the superannuation fund to refund the $20,000 as he did not satisfy the work test for claiming an income tax deduction for a personal superannuation contribution. However, the fund advises that they are not required to check if a member, aged 67 to 74, meets the work test from 1 July 2022. Joey makes a further check on the ATO’s website and confirms his fears that he still needed to satisfy the work test, but only to allow him to claim an income tax deduction and that it doesn’t apply for any of the personal contribution he made.
Joey now awaits the excess contribution cap determination from the ATO.
Had Joey made the contributions in 2021-22, the superannuation fund would have been required to refund all (the $350,000) of his contributions within 30 days of becoming aware that they could not have accepted the contributions as he did not satisfy the work test.
So, whilst the removal of the work test from the contribution acceptance rules provides opportunities for those age 67 to 74, it also has a few traps that need to be avoided.
1. SIS Sub-regulation 7.04(2)
2. SIS Sub-regulation 7.04(6)
3. SIS sub-regulation 7.04(6A)
4. Sub-sectn 66(1) SIS Act
5. Refer sub-sectn 66(2), (2A), (2B) SIS Act
6. SIS sub-regulation 7.04(4)
7. ATO website “Contributions a fund must not accept” (QC 21807 last modified: 16 Jul 2000
8. Sub-section 291-20(3)(b) ITAA 1997
9. Sub-section 291-20(3)(c) ITAA 1997
10. Sub-section 292-85(2) ITAA 1997
11. Sub-sectns 292-85(3) – (7) ITAA 1997
12. Assuming Kevin has provided his TFN to the superannuation fund trustee
13. The superannuation fund trustee(s) could accept a downsizer contribution or employer mandated contributions, but these would not utlise the balance of his brought forward non-concessional cap.
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.