Q I have recently sold an investment property and I am looking to invest the proceeds into Superannuation. I am 59 and employed. I understand there are limits as to how much I can put into Super. What are those limits and what are the consequences of breaching them.
A Contributions to Superannuation made by an individual from after-tax dollars are referred to as Non-Concessional Contributions. Non-Concessional contributions do not attract tax upon entry into the superannuation fund.
The Non-Concessional contributions cap is $150,000 per person, per financial year. Where a person is under age 65 at any time in the financial year, they are able to make a Non-Concessional Contribution of up to $450,000 utilising bring forward provisions. Bring forward provisions allow a Non-Concessional contribution of 3 times the annual cap over the 3 financial years. So in your case you could contribute up to $450,000 at one time in this Financial Year but would not be eligible to make a further Non-Concessional Contribution until after 1 July 2015.
If you are age 65 or over at the time the contribution is made, you need to ensure that you satisfy the work test prior to making the contribution. The work test is 40 hours gainful employment in a 30 day consecutive period in the Financial Year the contribution is made.
The Non-Concessional contributions cap is defined in legislation as 6 times the Concessional cap. Therefore when the Concessional cap increases though indexation, the Non-Concessional cap will increase also.
Where a person contributes more than the annual Non-Concessional cap in any given year, they will automatically trigger the bring forward provisions. This means that the cap applying for that financial year and the following two financial years will be $450,000.
Breaching the caps
It is the responsibility of the individual to monitor the contributions made by them or on their behalf to ensure these do not exceed the contributions caps. If however a Superannuation fund does identify a situation where an excess contribution has been made, the fund must return the excess amount within 30 days and excessive contributions tax will not apply on the returned amounts. The challenge is to identify the mistake.
Concessional contributions in excess of the Concessional Contributions cap will be subject to a penalty tax of 31.5%, in addition to the 15% contributions tax already levied. Any Non-Concessional contributions which are in excess of the Non-Concessional cap will be subject to a penalty tax of 46.5%.
Be very careful! In the worst case, where a contribution is in excess of both the Concessional and Non-Concessional caps, the total taxes levied will be 93% (i.e. 15% + 31.5% + 46.5%).
Common mistakes leading to excess contributions
It is deceptively easy to make mistakes with Superannuation contribution caps. Common mistakes include:
- Forgetting to check the history of both Concessional and Non-Concessional contributions made to all super funds in the current financial year and the previous two financial years.
- Inadvertently triggering the 3 year bring forward provisions.
- Making contributions of up to $450,000 for an individual when they are ineligible being over age 65.
- Excess Concessional contributions are also counted as a Non-Concessional contribution.
- Recontribution of withdrawn Superannuation benefits also count under the Non-concessional contribution cap.
- Spouse contributions count towards the receiving spouses’ cap not the contributing spouse.
There are a raft of common mistakes that are made around contribution caps so please be careful as the consequences can be very expensive and the ATO has little or no sympathy.
This Q & A Originally appeared in The Australian on April 28, 2012