THERE are two main types of super contributions an individual can make. The first and most common is a concessional contribution for which either the employer or the member making the contribution receives a tax deduction.
The second is a non-concessional contribution that is made by an individual from after-tax funds. Both of these contributions have limits on how much can be contributed, with severe penalties imposed when the limits are exceeded.
Q I have made the maximum "bring-forward" non-concessional contribution of $450,000 this year, but because I have two jobs I will also breach the $25,000 concessional cap by about $2000 this year and the following two years, which I understand will be added to my non-concessional contributions. Can I withdraw $6000 before the end of the financial year to reduce my non-concessional contribution to $444,000 this financial year?
A Unless a person meets a condition of release they cannot withdraw money from a superannuation fund. If this is done, tax is paid on the amount improperly withdrawn at the top marginal rate. In your case it does not sound as if you are 65 or older, and therefore could not withdraw the $6000. Even if you could, your fund would still have to advise the Tax Office that you made the contribution. For the 2011 year excess concessional contribution, you will not be able to do anything. This will result in tax being paid at 46.5 per cent on the $2000 excess contribution and this will then be classed as a non-concessional contribution.
As you have already contributed up to your maximum non-concessional contribution limit, a further excess contributions tax of 46.5 per cent will be payable on the $2000. This will result in total tax payable on the $2000 of $1860.
There was some good news in this year's federal budget that could provide some relief for you over the next two years. Under the change to the excess contributions tax regime, where the excess concessional contribution is less than $10,000, a person can have the excess contribution refunded by the superannuation fund without paying excess contributions tax.
Unfortunately this change to the excess contributions tax will only apply to contributions from July 1, 2011, and can only be used for one excess contribution in a person's lifetime. This should mean the $2000 excess concessional contribution in the 2012 year will not be taxed. The excess concessional contribution for the 2013 will be taxed the same as the 2011 excess.
Q I am retired and turned 65 on July 5 and contributed $450,000 to my self-managed super fund via a cash transfer to the fund on July 1. I am a little worried if there was a bank glitch and the transfer was delayed that I could be up for a horrendous tax bill. Am I right in thinking I won't have a problem as long as the money is deposited by July 28?
A If for some reason the transfer was delayed until after your 65th birthday you would need to pass the 40-hour work test in the 2012 year. The requirement to have superannuation deposited by the 28th of the month following when the contribution was made relates to people who turn 75. Normally once you turn 75 no further contributions are allowed. The exception being if the contribution is received by the super fund 28 days after the end of the month in which a person turned 75.
Questions can be emailed to super@taxbiz.com.au
Max Newnham's book, Funding your Retirement: A Survival Guide, is available in bookstores and as an e-book.
Frequently Asked Questions about this Article…
What is the difference between concessional and non‑concessional super contributions?
Concessional contributions are pre‑tax contributions (for example employer contributions or personally deductible contributions) that attract a tax deduction. Non‑concessional contributions are made from after‑tax money. Both types have annual caps and different tax rules if you exceed those caps.
What are the risks and tax penalties if I exceed the concessional cap?
If you exceed the concessional cap, the excess can be taxed heavily as an excess concessional contribution. Under the rules cited in the article, excess concessional amounts were subject to tax at 46.5% and the excess can be reclassified as a non‑concessional contribution. If you’ve already used your non‑concessional cap, a further excess contributions tax may apply — the article gives an example where a $2,000 excess attracted total tax of $1,860.
Can I withdraw money from my super to reduce my non‑concessional contribution before the financial year ends?
Generally no. You can’t withdraw money from super unless you meet a condition of release. Improper withdrawals can be taxed at your top marginal rate. Also, even if withdrawn, your super fund still has to tell the ATO about the original contribution, so withdrawing to avoid contribution caps is not a reliable fix.
How does the 'bring‑forward' non‑concessional rule interact with concessional cap breaches?
The bring‑forward rule lets you make a larger non‑concessional contribution in a single year by using future years’ caps (the article referenced a $450,000 bring‑forward example). However, if you also breach the concessional cap, the excess concessional amount may be reclassified as non‑concessional and count against your bring‑forward limit, potentially pushing you over the non‑concessional cap and triggering extra tax.
Is there any recent relief for small excess concessional contributions?
Yes — the federal budget change noted in the article allows a person with an excess concessional contribution of less than $10,000 to have that excess refunded by the super fund without paying excess contributions tax. This change applies to contributions from 1 July 2011 and can only be used once in a person’s lifetime. The article says this should mean a small excess in the 2012 year may be refunded, but it doesn’t apply retroactively to earlier years.
If I’m 65 and a bank transfer into my SMSF might be delayed, do I risk a tax problem?
Possibly. If a contribution is delayed until after you turn 65, you may need to meet the 40‑hour work test in that financial year to be able to make the contribution. The article notes timing rules for older ages and that different rules (such as the 28‑day receipt rule) specifically apply to people turning 75.
What is the 28‑day rule about super contributions and who does it affect?
The 28‑day rule referred to in the article applies to people who turn 75. A super fund can accept a contribution if it receives it within 28 days after the end of the month in which the person turned 75. Normally no further contributions are allowed once you turn 75, except for that short window.
Where can I get more personalised help about excess super contributions or related tax questions?
The article suggests emailing questions to super@taxbiz.com.au for further advice. It also references Max Newnham’s book 'Funding your Retirement: A Survival Guide' as an additional resource.
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