WHEN it comes to making super contributions, timing can be critical, where the timing or the amount contributed is wrong, penalty tax can be paid.
QCan non-concessional contributions be made at any time in a particular financial year and then again the next financial year, or do contributions have to be 12 months apart within consecutive financial years?
A There is no requirement for non-concessional contributions to be made 12 months apart, instead the restrictions and limits are applied to each financial year. This means a person who is under 65 at July 1, 2012, could make a non-concessional contribution of $150,000 on June 30, 2012, and then make a further non-concessional contribution on July 1, 2012, of $450,000.
The $450,000 could be made any time during the 2013 financial year, even if they have turned 65 that year. The only extra requirement if they are making the contribution after they have turned 65 is they must pass the work test in the 2013 financial year.
Q If I inadvertently exceeded the limit for concessional super contributions during 2011-12 is there anything I can do? Could I ask the super fund to return the excess so it can be taxed normally, or can I ask the super fund to transfer the excess into non-concessional contributions and get my employer to record the transferred amount as ordinary taxable income?
A A fund is now unable to return excess concessional contributions. It may be possible for your employer to contact the super fund to advise a mistake has been made and some of the contributions should be classed as non-concessional contributions.
If this year's federal budget measure relating to excess concessional contributions becomes legislation you would be able to request that the excess be refunded. This can only be done once, up to an excess contribution of $10,000. You would then pay tax on this at your marginal tax rate.
Q I have just returned from a seminar where the financial adviser said salary sacrificing the maximum amount a year provides no benefit if I take out a super pension. I am over 60 and thought that there was a benefit in starting a transition-to-retirement pension from my super fund.
A If you are contributing the maximum amount to super now the benefits of a TTR pension are not as great. In this case the benefit is limited to the tax saving on the income generated from the investments allocated to the pension account. If the pension paid is less than the tax saving there will be an overall benefit.
Another benefit results when the TTR received is not needed for day-to-day living expenses. In this situation the amount saved can be recontributed to the superannuation fund as a non-concessional contribution, thus increasing the tax-free benefits in a superannuation fund.
The main benefit of a TTR pension comes when a person is not contributing the maximum amount they can to superannuation.
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…
Do non-concessional super contributions have to be 12 months apart or can I make them in consecutive financial years?
No — there is no 12‑month spacing rule for non‑concessional super contributions. Limits and restrictions are applied to each financial year, so you can contribute in consecutive years (for example, a contribution on June 30 and another on July 1) as long as you stay within the yearly caps and any age‑related requirements.
Can I make a large non‑concessional contribution after I turn 65 in the same financial year?
Yes — you can make a non‑concessional contribution during the financial year even if you turn 65 that year, but if the contribution is made after you’ve already turned 65 you must meet the work test in that financial year before the contribution is accepted.
What happens if I inadvertently exceed the concessional contributions cap?
A super fund is currently unable to simply return excess concessional contributions to you. Your employer may be able to contact the fund to say a mistake was made and ask that some contributions be reclassified as non‑concessional. Also, if a proposed federal budget measure becomes law you may be able to request a one‑time refund of excess concessional contributions up to $10,000, in which case you would pay tax on that refunded amount at your marginal tax rate.
Can my super fund transfer excess concessional contributions into non‑concessional contributions to avoid penalty tax?
The fund cannot automatically return excess concessional contributions, but it may be possible for your employer to advise the fund that a mistake occurred and request some contributions be reclassified as non‑concessional. This depends on the circumstances and current rules — a full refund option is only available if the relevant budget measure is passed into law.
Is timing important when making superannuation contributions and what are the risks of getting it wrong?
Yes — timing and the amount you contribute are critical. If you contribute too much or at the wrong time relative to the financial year rules you may face penalty tax. Always check annual caps and age‑related work test requirements before making large contributions.
If I’m salary sacrificing the maximum amount, is there still a benefit to starting a transition‑to‑retirement (TTR) pension?
If you are already contributing the maximum to super, the benefits of a TTR pension are more limited. The main advantage becomes the tax saving on income generated from the assets moved into the pension account — if the pension payments are less than that tax saving you can still come out ahead. TTR provides greater value when you are not already contributing the maximum amount to super.
Can I recontribute TTR pension payments back into my super as non‑concessional contributions?
Yes — if you don’t need the TTR pension payments for day‑to‑day living, you can save them and recontribute the amount back into super as non‑concessional contributions. That can increase the tax‑free benefits inside your superannuation fund.
Where can I get more personalised advice about super contributions, excess contributions and TTR strategies?
The article suggests emailing questions to super@taxbiz.com.au for further guidance. It also references Max Newnham’s book, Funding Your Retirement: A Survival Guide, which is available in bookstores and as an e‑book for more in‑depth reading.
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