Non-concessional contributions advantagesDolfinwise Super Strategies

Non-concessional contributions (NCCs) 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)

NCCs include personal contributions for which the person does not claim a tax deduction.

Following the 2009 Federal Budget, legislation has been passed to reduce the NCC cap from 1 July 2009 to $150,000.

Exemptions from the NCC cap

As mentioned above, there are a number of contributions that can be made that will not be counted towards the NCC cap. Two of these are personal injury payments and contributions from the disposal of small business assets. These are discussed below.

Small business CGT exemption

Contributions made from certain amounts arising from the disposal of qualifying small business assets are exempt from the NCC cap up to a lifetime limit of $1.1 million provided it is a personal contribution for which no deduction is claimed. A client's CGT cap is reduced by the amount of each contribution they elect to be covered by the exemption from the NCC cap.

Contributions allowed under the CGT cap are:

	Capital gains from the disposal of assets that qualify for the CGT retirement exemption provided the lifetime limit of $500,000 has not been exceeded
	Capital proceeds from the disposal of assets that qualify for the 15-year CGT exemption, including capital proceeds that would have qualified for the 15-year CGT exemption except that:

	the disposal did not result in a capital gain or a capital loss
	the asset was a pre-CGT asset, or
	the disposal occurred before the required 15-year holding period had elapsed because of the permanent incapacity of the client (which occurred after the asset was purchased).

Timing rules apply in relation to making the contribution. Following the CGT event, the contribution must be made no later than the date they are required to lodge their income tax return or 30 days from receipt of the capital proceeds. Where the client is a CGT concession stakeholder who qualifies for the CGT cap, the contribution must be made within 30 days of receiving the disposal proceeds (provided the entity makes the payment in the required timeframe, usually within two years of the event).

Personal injury payments

To be excluded from the cap the contribution must have been derived from any of the following:

	a structured settlement payment
	an order for a personal injury payment
	a workers compensation payment, taken as a lump sum.

The exclusion only applies to that part of the payment that is compensation or damages for personal injury. Two legally qualified medical practitioners must certify that the individual is unlikely to ever be gainfully employed in the capacity for which they are reasonably qualified by education, training or experience due to the injury. The payment must be made to the super fund within the later of 90 days of receipt of the payment or the structured settlement or order coming into effect.

The individual must give notice to the super fund that the contribution is being made under this exemption before, or when, making the contribution.

The bring foward rule

A 'bring-forward' option has been available from 1 July 2007. A person under age 65 on the first day of the financial year can make NCCs of up to the bring-forward cap over a three-year period.

The bring-forward cap is three times the NCC cap of the first year.

Following the 2009 Federal Budget, legislation has been passed to reduce the NCC cap from 1 July 2009 to $150,000 (it was to have been indexed up to a higher amount). Therefore the bring-forward cap will be $450,000 for 2009/10.

The 3-year bring-forward cap values are shown in the following table:

Source: 2009 Federal Budget papers and ATO Fact Sheet 'Key superannuation rates and thresholds', issued June 2009

A bring forward will be triggered automatically when contributions in excess of the NCC 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 2008/09 the bring-forward cap would be 3 x $150,000 = $450,000. If this person contributed $200,000 during 2008/09, they would be entitled to contribute a further $250,000 (i.e. $450,000 - $200,000) in total over the 2-year period 2009/10 to 2010/11.

Breaching the cap

Where a person's NCCs have exceeded the relevant NCC 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 assessment from the ATO. The member must withdraw the tax amount from the fund by submitting the ATO Release Authority to the fund within 21 days. The fund then has 30 days to pay. It is also possible for the member to request the fund to pay the ATO direct on their behalf.