Type of contribution to SMSF

Contributions can be by way of cash or transfer of assets. Contributions can be categorized as follows:

  • Employer Contribution – Employers are required contribute superannuation on behalf of their employees.
  • Personal Contribution – Members can either contribute through salary sacrifice or pay directly into the superfund.
  • Government co-contribution – If the member is a low income earner and they made personal contribution into their super, government will match up to $1,000 of the contribution.
  • Spouse contribution – Contribution made by the spouse of the member.
  • In-specie contribution – Contribution by way of asset instead of money.
  • No-TFN contribution – Where a TFN of a member has not been quoted to their fund, the member’s concessional contribution will become No-TFN contribution and will be subject to an additional tax of 31.5%.
  • Small business retirement exemption  – This is a small business concession where member can choose to roll the capital gain on sale of small business into their superfund. (CGT lifetime cap $1,155,000 in 2010-2011)

Concessional/Non-concessional contribution
Each type of contribution above would fall into one of the following two categories, this is to define whether the contribution is taxable (15%) or tax-free (Nil%) within the superfund:

1) Concessional contribution (a.k.a Taxable/deducted contribution)

This is the contribution that employee has claimed tax deduction in their individual tax return and therefore this type of contribution is a “taxable contribution” within the superfund. That is to say the contribution will be included in the assessable income of the super fund and pension paid from concessional balance will be taxable on member’s hand. This includes:

  • Employer contribution;
  • Employee salary sacrifice. Contribution cap is limited to $25,000 if member’s age under 50 and $50,000 if member’s age 50 or above in year 2010-2011:

2) Non-concessional contribution (a.k.a Tax-free/undeducted contribution)

This is the contribution that employee has NOT claimed tax deduction in their individual tax return and therefore tax free in superfund. That is to say the contribution will NOT be included in the assessable income of the super fund, and pension pay from non-concessional balance will be tax-free on member’s hand. This includes:

  • Personal contribution that the member did not claim as deduction. Cap at $150,000 per year and up to $450,000 for 3 years ;
  • Government co-contribution (This would not count towards the contribution cap).
  • Small business retirement exemption. One should note that this would count towards the CGT lifetime limit cap and not count towards the non-concessional contribution cap.
  • Spouse contribution;
  • Child contribution;
  • In-specie contribution.

Net earning each year will be allocated to the conessional and non-conessional account based on the balance in the fund.

Contribution splitting

Contribution can be split between member and their spouse. There are certain requirements:

  • Contributions must be concessional contributions.
  • Contributions made this year can be split in the following income year;
  • Member cannot split contributions to spouse who has already retired;
  • Non-concessional contribution is not allowed to split;
  • Concessional contribution generally will be taxed at 15%, i.e. member can only split the remaining 85% of the concessional contribution.

Restriction on contribution

1) Member age under 65 – Trustee can accept contribution up to the contribution cap.

2) Member age 65 to 74 – Trustee can only accept contribution if the member is employed for at least 40 hours in no more than 30 consecutive days during the financial year. The amount of contribution is also subjected to the contribution cap.

3) Member age 75 or above – Trustee can only accept contribution from employer contribution.

Contribution Cap

  • Concessional contribution – Member age below 50 can contribution $25,000 p.a; Member age 50 or more can contribute $50,000
  • Non-concessional contribution – Contribution cap at $150,000 p.a; up to $450,000 every three years so member can contribute up to $450,000 in first year and Nil contribution for the subsequent 2 years;
  • Small business CGT retirement exemption – Lifetime limit at $1,155,000 in 2010-2011

Consequence of contribution over the limit (Excessive contribution tax)

The objective of excessive contribution tax is to ensure the amount of concessionally taxed super is the result of contributions made to super gradually over time.

There will be excessive contribution tax on the amount above the contribution cap which results in extra 31.5% tax on the excess component on top of the 15% contribution tax, i.e. 46.5% in total. Furthermore, the excessive amount of concessional contribution will also deem to be non-concessional contribution and count towards the non-concessional contribution cap which could results in additional 46.5% if the non-concessional limit is reached (i.e. double taxed at 93%).