There are many layers to the world of self-managed super funds (SMSF), with one of the elements being contributions. We’ve touched on an important category of contribution that’s given a generous tax treatment by the Australia Taxation Office (ATO), otherwise know as concessional contributions. But how else can you add more into your SMSF account? Let’s take a look at a two other types that you might come across.
What are non-concessional contributions?
Non-concessional contributions are payments into your account that aren’t judged as part of its assessable income. Basically, this means that the contributions are made with money that’s already been taxed. As such they don’t receive the reduced tax rate of 15 per cent, and you won’t be able to claim a tax deduction on, for example, personal contributions made by a member of the fund. The same also applies for money paid into the account on behalf of a spouse.
Is there a limit on them, too?
Like concessional contributions, the ATO has put a cap on the total sum of non-concessional contributions you can deposit into your SMSF each year. This can change annually, and even shifts as you get a bit older, so it’s worth having a chat to your financial adviser and accountant about the limit placed on your account (or accounts) in the upcoming financial year – and the years ahead.
From July 1 2014, the ATO put a plug on non-concessional contributions over $180,000 for members in the 65 to 75 age bracket. On the other hand, members under 65 are eligible to contribute $540,000 over that space of three years.
There are some fairly large penalties for going over this cap, with a whopping 47 per cent tax rate applied to all excess contributions. In fact, if you breach the cap, you’ll need to pay money out of your fund that’s equal to the tax – something that could undermine all your good efforts toward saving for retirement.
Don’t forget the bring-forward rule!
While the cap is $180,000, if you’re under 65 you have the option to bring forward two years worth of non-concessional contributions – this is known as the bring-forward rule. But there’s something else to keep in mind, too. Once you go over the cap, the rule is applied automatically for the next two years. This means that, in theory, you can make up to $540,000 in after-tax contributions for a single financial year.
Just be careful – you’ll still be slapped with the excess penalty tax if you go over this amount. To keep your SMSF on track, financial planning can help you stay on top of what you’re contributing each year, and help identify any extra payments before they happen.
