Non Concessional Contributions
Personal Contributions made into an SMSF from after tax income on which no tax deduction is claimed are known as Non Concessional Contributions. Non Concessional Contributions are personal contributions made into your SMSF from your own personal Bank Account and not from your Employer.
Eligibility to make Non Concessional Contributions
If you are aged between 67 and 74, you can only make Non Concessional Contributions into your SMSF if you satisfy all of the following eligibility criteria:
1. Total superannuation balance Eligibility Threshold
If you have a total superannuation balance which is equal or more than the general Transfer Balance Cap on 30 June of the previous Financial Year, you are not eligible to make Non Concessional Contributions regardless of everything else.
The general Transfer Balance Cap for a given Financial Year is as follows:
| Income Year |
General Transfer Balance Cap
|
| 2021-22 | $1.7 million |
| 2020-21 |
$1.6 million |
| 2019-20 |
$1.6 million |
2. Work Test Related Rules
In addition to meeting the total superannuation balance Eligibility Threshold, you are required to meet a Work Test or be eligible for the Work Test Exemption in order to make Non Concessional Contribution into your SMSF.
Definition of Work test
The "Work Test" requires that an Individual is "Gainfully Employed" for at least 40 hours in a period of not more than 30 consecutive days in that Financial Year. The term "Gainfully Employed" is defined to mean employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment. Gain or reward essentially means that you are remunerated in return for the personal services provided (e.g. as a salary, business income, bonuses and commissions that are fully documented and declared for tax purposes). It does not include passive investment income (e.g. rental income or dividend income). In addition, volunteers are generally not considered to be gainfully employed as they do not receive remuneration for their services. You should also take care if you involve family and friends in an attempt to satisfy the definition of “gainful employment”. If you assist another family member by say, babysitting or gardening, the particular circumstances surrounding the arrangement will be critical. For example, if you look after your grandchildren while their parents are on holiday, it is likely that your motive for doing so would be for personal or domestic reasons rather than to derive financial gain as per a normal employer / employee arrangement. In this case, even if you are paid for your services, the definition of gainful employment may not be satisfied.
Definition of Work Test Exemption (WTE)
The Work Test Exemption (WTE) was introduced from 1 July 2019. If you meet certain criteria, you will be able to make voluntary contributions for 12 months from the end of the Financial Year in which you last met the Work Test – this is known as the Work Test Exemption.
To meet the Work Test Exemption criteria, you must:
- have a total superannuation balance of less than $300,000 as at 30 June of the previous Financial Year;
- have satisfied the Work Test in the Financial Year preceding the year in which you made the contribution;
- have not previously utilised the Work Test Exemption;
- be allowed to make voluntary contributions based on your age (noting voluntary contributions are not allowed when you reach age 75).
In terms of the amount of money that could be contributed, the existing concessional contribution cap and non-concessional contribution cap will continue to apply.
What happens if you contribute without passing the Work Test or without meeting the Work Test Exemption Criteria?
If you are required to pass the Work Test or meet the Work Test Exemption Criteria but you contribute to your SMSF without doing so, the amount must be returned to you by your SMSF within 30 days. If the "ineligible" amounts are not returned within this time, your SMSF will have breached the superannuation contribution rules resulting in compliance issues that will be reported to the ATO in your SMSF's annual audit.
Maximum Non Concessional Contributions Allowed
If you are aged between 67 and 74, the Non Concessional Contributions limit for a given Financial Year is as follows:
| Income Year |
Amount of cap |
| 2021–22 |
$110,000 per member per annum |
| 2020–21 |
$100,000 per member per annum |
| 2019–20 |
$100,000 per member per annum |
Bring Forward Rule does not apply
The Bring Forward Rule allowing you to bring forward up to two years of contributions is not available to persons above age 67.
However if you are aged 66 on 1 July of the current Financial Year and turn 67 during the Financial Year, you may access the bring-forward arrangement in the current Financial Year if all other requirements are met.
No Tax on Non Concessional Contributions
All Non Concessional Contributions must be deposited into a Bank Account established for your SMSF. No tax is ever payable on a Non Concessional Contribution made into an SMSF either when the monies are contributed into the SMSF or when monies are accessed later on at retirement.
How ESUPERFUND tracks Non Concessional Contributions
Each Contribution and Contribution Type must be allocated to a specific Member as part of the annual compliance process. This is a legal requirement. Typically the Member making the Contribution and the Contribution Type will be detailed on the Bank Statement. To the extent that the narration on the Bank Statement is insufficient, you will be asked to confirm on whose behalf the contributions have been made and the Contribution Type using an annual checklist we send to all SMSF clients each year by 31 August. You do not need to send us confirmation at the time each Non Concessional Contribution is made. This information is only required annually and we will guide you through the process and prompt you when information is required from you. For more information on Frequently Asked Questions about Non Concessional Contributions, please click here.
Excess Non Concessional Contributions
To the extent you make a Non Concessional Contribution exceeding your Non Concessional Contribution Limit, the ATO will contact you by sending you a Determination letter after the lodgement of your SMSF Annual Return. You will be asked to choose how your Excess Non Concessional Contributions are taxed.
You have the following options:
Option 1 Release the excess amounts from your SMSF
If you choose this option, you are electing to withdraw all your Excess Non Concessional Contributions and 85% of associated earnings from your SMSF. In this case, the Excess Non Concessional Contributions will NOT be subject to Excess Non Concessional Contributions tax. However the full associated earnings amount stated in the determination is added to your assessable income and taxed at your marginal tax rates subject to a 15% tax offset.
To select this option, you need to make an election using ATO online services or complete the excess non-concessional contributions election form and send it to the ATO. Generally, you have 60 days after the date of issue of the determination to make an election.
Once the ATO processed your election, they will send a release authority form to the superfunds you nominated. You will have 20 business days to action a release authority which includes paying the amount stated in the release authority and completing the release authority to send it back to the ATO. Importantly the amount should only be released after the release authority is received.
Please note that a copy of the completed release authority is required to be provided to our office via the annual checklist for audit purposes.
Option 2 Pay Excess Non Concessional Contributions tax on the excess amount
If you choose not to release your Excess Non Concessional Contributions from your SMSF, the Excess Contributions over the Non Concessional Contribution Limit will be subject to Excess Contributions Tax at the highest marginal tax rate of 47%. The excess non-concessional contributions tax will need to be paid from your super.
Excess Contributions Tax can result in double taxation, with an effective tax rate of up to 94%. To avoid this situation, it is vital that you keep track of all your Non Concessional Contributions.
To select this option, you need to make an election using ATO online services or complete the excess non-concessional contributions election form and send it to the ATO. Generally, you have 60 days after the date of issue of the determination to make an election.
Once the ATO processed your election, they will send a release authority form to the superfunds you nominated. You will have 20 business days to action a release authority which includes paying the amount stated in the release authority and completing the release authority to send it back to the ATO. Importantly the amount should only be released after the release authority is received.
Please note that a copy of the completed release authority is required to be provided to our office via the annual checklist for audit purposes.
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