THERE are two main types of superannuation 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 which is made by an individual from after-tax funds. Both of these contributions have limits placed 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 If this is done tax is paid on the amount improperly withdrawn at the top marginal rate.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 withdraw $6000 of your $450,000 non-concessional contribution, your fund would still have to advise the ATO 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 today, 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 2013 will be taxed the same as the 2011 excess.
Q I am retired and turn 65 on July 5 and am intending to contribute $450,000 to my self-managed super fund via a cash transfer today. I am worried that if there was a bank glitch and the transfer was delayed until say July 6, 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, 2011?
A If for some reason the transfer of the $450,000 is 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.
Questions can be emailed to super@taxbiz.com.au
Max Newnham's book, Funding Your Retirement A Survival Guide, is available in book stores and as an eBook.
Frequently Asked Questions about this Article…
What are the main types of super contributions and how are they taxed?
There are two main types of super contributions: concessional contributions (made by your employer or by you and claimed as a tax deduction) and non‑concessional contributions (made from after‑tax money). Concessional contributions receive tax treatment on entry to super, whereas non‑concessional contributions are made from taxed income.
What are the concessional and non‑concessional contribution caps and what happens if I exceed them?
The article refers to a $25,000 concessional cap and an example $450,000 'bring‑forward' non‑concessional contribution. If you exceed caps severe penalties apply: excess concessional contributions can be taxed at 46.5% and then treated as non‑concessional contributions, which can trigger further excess contributions tax if you’ve already hit your non‑concessional limit. The article gives an example where a $2,000 excess attracts total tax of $1,860.
Can I withdraw money from my super to reduce non‑concessional contributions before the end of the financial year?
Generally no — you can’t withdraw super unless you meet a condition of release. If you improperly withdraw funds, the amount may be taxed at your top marginal rate. The article’s example notes someone under 65 could not simply withdraw $6,000 to reduce their non‑concessional total.
If I exceed the concessional cap by a small amount, can my super fund refund it to avoid excess contributions tax?
A recent budget change described in the article says where an excess concessional contribution is less than $10,000, the super fund can refund the excess without the person paying excess contributions tax. However this change only applies to contributions made from the date of the change and it can be used only once in a person’s lifetime.
If a bank transfer to my self‑managed super fund is delayed and I turn 65 in that time, will I still be able to contribute?
If a contribution is received after your 65th birthday you may still be able to contribute, but you would need to satisfy the 40‑hour work test for the relevant year. The article cautions that timing and meeting the work test are the key issues if a transfer is delayed past your 65th birthday.
What is the 40‑hour work test mentioned for people over 65?
The article notes that if a contribution is made after you turn 65 you must pass the 40‑hour work test in the relevant year to make that contribution. (The article does not provide further detail on how that test is applied.)
Do super funds have to report my contributions to the ATO if I make a large non‑concessional contribution?
Yes. Even if you were able to withdraw a contribution, your fund would still have to advise the ATO that you made the contribution, so the contribution and any excess would be visible to tax authorities.
Are there different rules about making contributions once you turn 75?
Yes. The article points out that the requirement to have super deposited by the 28th of the month following the contribution relates to people turning 75, and normally once you turn 75 no further contributions are allowed.
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