Self Managed Super – Contributions & Rollovers
Paying money into or transferring assets to your Self Managed Super Fund (SMSF) is what is referred to as “making a contribution” to your Fund. When a contribution is made into a Self Managed Super Fund it has to be allocated to a member’s account balance within 28 days of the end of the month in which the contribution was made.
Contributions into your SMSF can be made in cash or in kind or what is called “in specie”.
Contributions into your SMSF can be made a number of different ways. Outlined below are some of the most common ways contributions are made to super.
Superannuation Guarantee Contributions
Employers must pay to their employees the “Superannuation Guarantee Contributions” (“SGC”) at the rate of 9% of their salary and bonuses. This is the law according to the Superannuation Guarantee (Administration) Act 1992.
An employer making a SG contribution for an employee gets a tax deduction for this payment. It forms part of the salary of the employee. Often SMSF members operate their own businesses and pay themselves the SG contribution as part of their salary package.
When a contribution is made into any Super Fund and a tax deduction is claimed by the party making the payment, this is called a “concessional contribution” (previously referred to as a “deductible contribution”). The super fund that gets this contribution must pay a 15% contributions tax on this type of contribution.
SMSF Contribution Caps
In addition to the SG contribution, you may wish to contribute more into super and be entitled to a tax deduction for it. But there are limits for the amounts of these contributions in which you receive concessional tax treatment. These limits are called “contribution caps”.
Contribution caps are based on a person’s age. These caps apply for those under age 50 and those age 50 and over. Further changes have been announced by the Federal Government to apply for individuals over 50 with account balances under $500,000 (to apply from 1 July 2014)
Refer to the table below for the 2011/12 financial year “contribution caps” for concessional contributions.
|50 and over||$50,000*|
* current transitional limit available until 30 June 2012, where the $50,000 limit for those 50 and over will cease. From 1 July 2012 all individuals regardless of age will have a $25,000 concessional contribution cap.
Self-employed people and those working for an employer can pay super contributions up to their contribution cap and receive concessional tax treatment. An employee does this by arranging to salary sacrifice with their employer. The employee has an amount paid to super as opposed to their pocket as wages.
With super fund tax at 15%, you may obtain tax benefits by salary sacrificing as this tax rate is lower than your marginal tax rate. It is important to note that salary sacrifice arrangements have to be made at the start of each financial year with your employer.
You can also make another type of contribution into super in addition to your concessional contributions; these amounts are paid into your super fund with post-tax savings. These contributions are called “non concessional contributions” (previously called “undeducted contributions”). You don’t get a tax deduction for these, as there is no tax paid when these contributions are made into the Fund.
There are also “caps” for non-concessional contributions. A maximum of $150,000 in one financial year is permitted. Where you are under age 65 at 1 July, you can (if you wish) pay up to three years, or $450,000, as a non concessional contribution in one year. For example if you did this on 1 July 2010, you cannot make another contribution of this type until after 30 June 2013 (3 years).
|65 years and over||$150,000|
* Individuals less than 65 at 1 July in the year in which the contribution is made can bring forward up to 3 year’s contributions in one financial year.
Contributions of both types, concessional or non concessional, don’t have to be in cash. You can pay them in kind or what is referred to as an “in specie contribution”. You should make sure that your SMSFs Trust Deed allows for “in specie contributions” before you make these into the Fund. You can update your fund’s trust deed to allow for this.
There is a general prohibition on acquiring assets from a member or related party. However, there are limited exceptions that can be used for in specie contributions – shares listed on any approved stock exchange, widely-held trusts (i.e. managed funds) and commercial property (including your own business premises).
Tax File Numbers and Your SMSF
Before any contributions are made into your SMSF you need to make sure that the Trustee(s) have your Tax File Number (“TFN”). Without your TFN the tax deduction the employer or the salary sacrificing employee would get would not be available. Without a TFN the Trustee(s) might not even be able to accept the contribution. More importantly heavy tax penalties can apply without a member’s TFN.
You don’t have to be working to make contributions into super. You can still make contributions into super and get a tax deduction after you have retired. Under certain conditions you can continue to make contributions up to age 75.
When retired you may get income from other sources apart from your super savings. You make contributions into super up to your concessional contribution cap and potentially claim a deduction to reduce any personal tax liability.
“The Work Test” and Your SMSF
You can keep paying super contributions up to the age of 65 and not be required to work. After age 65 you must pass “the work test” to be able to make contributions into super.
The work test requires the individual (65 or over) to have worked at least 40 hours in any 30 day consecutive period during the financial year in which you make the contribution.
After age 65 you are restricted to making a $150,000 non concessional contribution in each financial year. You can in the same year still pay concessional contributions into the Fund up to your non-concessional contribution cap. Remember though the “work test” must be passed for you to make either of these contributions.
Rolling money into your SMSF
As well as making contributions into your SMSF you can also “rollover” any other superannuation balances that you may have in another location or locations. There is no tax penalty transferring superannuation from one regulated Fund to another.
There are other types of “rollovers” including termination payments and Small Business Capital Gains Tax Concessions.
Need more information about Self Managed Super Funds?
This article provides only a short summary of many of the issues relating to superannuation contributions into your Self Managed Super Fund. Like the majority of issues, rules and regulations regarding super contributions into your self managed super fund, these can be very complex.
IMPORTANT NOTE: If you pay more into your super fund than you are allowed to in any given financial year and you exceed the “caps” you could end up paying as much as 93% tax, so be careful!!
Free information on these more complex topics and other trustee education articles are available for SMSF Academy Members – read more about the SMSF Trustee Membership benefits here.
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