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Non-Concessional Contribution Rules

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Dolfinwise Super Strategies

Non-concessional contributions to super can be extremely powerful in reducing investment income tax and boosting social security payments particularly for those aged over 55. They are also a useful way to aid future generations to pay no capital gains tax upon inheriting money. Client’s selling investment properties, businesses or receiving compensation payouts may wish to take advantage of these rules. There are many traps for the unwary and the penalties are high (up to 46.5% of contributions) for breaching contribution cap limits so anyone considering making these contributions should get professional advice first.

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Non-concessional contributions are contributions made by or for a taxpayer that are not included in the super fund’s assessable income (previously referred to as undeducted contributions). Non-concessional contributions include personal contributions for which the person does not claim a tax deduction. The current non-concessional contribution cap is $150,000 per annum.

There are a number of contributions that can be made that will not be counted towards the non-concessional contributions cap. Two of these are personal injury payments and contributions from the disposal of small business assets.

The bring-forward rule

A ‘bring-forward’ option has been available since 1 July 2007. A person under age 65 on the first day of the financial year can make non-concessional contributions of up to the bring-forward cap over a three-year period.

The bring-forward cap is three times the non-concessional contribution cap of the first year. Therefore the bring-forward cap is $450,000.

A bring-forward will be triggered automatically when contributions in excess of the non-concessional contribution cap are made during an income year by a taxpayer who is under age 65 on 1 July in the relevant year.

The year in which the 3-year cap is initially triggered determines the value that can be contributed during the 3-year period. Once triggered, this value will not be indexed.

For someone who brought forward their contributions in 2011/12 the bring-forward cap would be 3 x $150,000 = $450,000. If this person contributed $200,000 during 2011/12, they would be entitled to contribute a further $250,000 (i.e. $450,000 – $200,000) in total over the 2-year period 2012/13 to 2013/14.

Breaching the cap

Where a person’s non-concessional contributions have exceeded the relevant non-concessional contribution cap in a financial year, the amount in excess of the cap is subject to excess non-concessional contributions tax. This tax is assessed to the member at the rate of 46.5%.

The member will receive an excess contributions tax Notice of Assessment from the ATO. Once the Notice of Assessment is received, the tax is due within 21 days. Members must pay the excess contributions tax themselves, however they can use funds from super by submitting a “voluntary release authority”.

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Superannuation contributions are very complex and the consequences of getting it wrong can

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be very costly. That’s why it’s a good idea to talk to a financial adviser if you are planning on making contributions to super.

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