Financial Professionals: Estate Planning
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Concessional Contributions Overview Concessional contributions are contributions made by or
for an individual that are included in the superannuation fund's assessable
income, (previously referred to as taxable/deductible contributions). The
contributions do not have to be included in the assessable income of the
superannuation fund in the same year that the contribution is made.
Concessional contributions do not include: q
a
taxable component of a transfer from an overseas super fund q
a
rollover of untaxed element q
the
taxable component of a directed termination payment within the $1 million limit
(up to 30 June, 2012) q
Contributions
to a constitutionally protected fund Cap on
concessional contributions A concessional contributions cap of $50,000 per person
per annum applies to concessional contributions made from 1 July 2007. The $50,000 cap applies for the 2007/2008 financial
year and will be indexed annually to average weekly ordinary time earnings and
rounded down to the nearest $5,000. Transitional
concessional contributions cap A transitional concessional contributions cap of
$100,000 (which is not indexed) per person per year applies from 2007/08 to
2011/12 for individuals aged 50 or over at any time during the transitional
period. This is to give consideration to clients over age 50 that previously
benefited from a larger maximum age based limit. From 2012/2013 the concessional contribution cap of
$50,000 (indexed annually from 2008/2009) will apply to all taxpayers. The following example illustrates how this is applied: Example Jeremy turns 50 on 5 October 2009 (i.e. in the
2009/2010 financial year). At this time, he becomes entitled to the higher
transitional cap of $100,000 per year. His annual concessional contributions
caps for the years 2007/2008 to 2011/2012 are set out in the table below.
Source: Explanatory Memorandum to Tax Laws Amendment
(Simplified Superannuation) Act 2007 Non-Concessional Contributions
Overview Non-concessional contributions (NCC) are contributions
made by or for a taxpayer that are not included in the superannuation fund's
assessable income, (these were previously referred to as undeducted
contributions) and the amount of the taxpayer's concessional contributions in
excess of the concessional contributions cap for a financial year. NCCs do not
include: q
Government
co-contributions; q
contributions
relating to personal injury payments; q
contributions
from the disposal of small business assets (up to $1 million indexed); q
contributions
paid out as a superannuation benefit in the same year that they are contributed
as an untaxed element; q
roll-over
superannuation benefit; or q
amounts
that are specifically excluded from a fund's assessable income because they are
included in the concessional contributions cap Contributions
made directly by a taxpayer into their spouse's account will be counted against
the receiving spouse's non-concessional contributions cap. Cap on non-concessional contributions The non-concessional contributions cap is $150,000 per
person per year. The cap is not indexed but is fixed at three times the ongoing
concessional contributions cap. Exemptions from NCC cap As mentioned above, there are a number of contributions
that can be made that will not be counted towards the NCC cap. Two of which are
personal injury payments and contributions form the disposal of small business
assets. These are discussed below: Personal
injury payments To
be excluded from the cap the contribution must have been derived from: q
a
structured settlement payment; or q
an
order for a personal injury payment, or q
a
workers compensation payment, taken as a lump sum. The exclusion only applies to that part of the payment
that is compensation or damages for personal injury. Two legally qualified
medical practitioners must certify that the individual is unlikely to ever be
gainfully employed in the capacity for which they are reasonably qualified by
education, training or experience due to the injury. The payment must be made
to the superannuation fund within the later of 90 days of receipt of the
payment or the structured settlement or order coming into effect. The individual must give notice to the superannuation
fund that the contribution is being made under this exemption before, or when,
making the contribution. Small
business CGT exemption Contributions made from certain amounts arising from
the disposal of qualifying small business assets are exempt from the NCC cap up
to a lifetime limit of $1 million (indexed) provided it is a personal
contribution for which no deduction is claimed. A client's CGT cap is reduced
by the amount of each contribution they elect to be covered by the exemption
from the NCC cap. Contributions
allowed under the CGT cap are: q
Capital
gains from the disposal of assets that qualify for the CGT retirement exemption
provided the lifetime limit of $500,000 has not been exceeded. q
Capital
proceeds from the disposal of assets that qualify for the 15 year CGT
exemption, including capital proceeds that would have qualified for the 15 year
CGT exemption except that the disposal did not result in a capital gain or a
capital loss; the asset was a pre-CGT asset; or the disposal occurred before
the required 15-year holding period had elapsed because of the permanent
incapacity of the client (which occurred after the asset was purchased). Timing rules apply in relation to making the
contribution. Following the CGT event, the contribution must be made no later
than the date they are required to lodge their income tax return or 30 days
from receipt of the capital proceeds. Where the client is a CGT concession
stakeholder who qualifies for the CGT cap, the contribution must be made within
30 days of receiving the disposal proceeds (provided the entity makes the
payment in the required timeframe, usually within 2 years of the event). A
contribution will only count towards the CGT cap if the client notifies their
superannuation provider before, or when, the contribution is made. Source
- Adapted from MLC - Analysis of new super legislation, December 2006 The bring forward rule From 1 July 2007 taxpayers under the age of 65 are able
to bring forward two years of future entitlements of NCCs, giving them a cap of
$450,000 over three financial years. Therefore, a taxpayer under the age of 65
will be able to make a $450,000 contribution over three financial years without
exceeding their NCC cap. For example, a person under the age of 65 can make a
$450,000 contribution in the 2007/2008 year provided they do not make further
non-concessional contributions until the 2010/2011 financial year. A bring forward will be triggered automatically when
contributions in excess of the NCC cap are made during an income year by a
taxpayer who is under the age of 65. Where a bring forward has been triggered
by an individual under age 65 the two future years' entitlements are not
indexed. This means that over the three year period starting in that financial
year, the person is limited to NCCs equal to three times the cap amount in the
first year. For example, in 2007/08 the NCC cap is $150,000 per year. If a
person age 60 contributes $200,000 in 2007/08, they can contribute a total of
$250,000 during 2008/09 and 2009/10 (i.e. $450,000 - $200,000). No indexation
applies to the cap in the 2-year period. A fund is restricted to accepting non-concessional
contributions up to the cap that applies for the financial year in which it's
made (e.g. $150,000 for 2007/08 or $450,000 using the 2 year 'bring forward'
rule). Furthermore, funds are not allowed to accept personal non-concessional
contributions if the member has not quoted a tax file number. Refer to Explanatory Memorandum to Tax Laws Amendment
(Simplified Superannuation) Act 2007 for a illustration of the operation of the
bring forward rule and some practical examples. Source:
© 2007 Kaplan Education Pty Ltd
Overview Where a person's concessional
contributions have exceeded the concessional contributions cap in a financial
year, the amount in excess of the cap is subject to excess concessional
contributions tax. This tax is assessed to the taxpayer at the rate of 31.5%. Non-concessional contributions made
during the financial year which exceed the non-concessional contributions cap
will be subject to excess non-concessional contributions tax. This tax is
imposed on the taxpayer at the highest marginal tax rate plus Medicare levy
(i.e. 46.5%). The Commissioner must make an excess
contributions tax assessment of a taxpayer's excess concessional and
non-concessional contributions for a financial year. Both excess concessional
and non-concessional contributions tax are imposed in an excess contributions
tax assessment. The Commissioner must give the taxpayer notice in writing of an
excess contributions tax assessment as soon as practicable after making the
assessment. The ATO will provide individuals with a
'release authority' stating the amount of tax payable. The taxpayer has 21 days
from receiving the excess contributions tax assessment to pay the tax
liability; otherwise the general interest charge is imposed. The individual can choose whether to
withdraw the tax from the super fund for excess concessional contributions,
however, this is mandatory for non-concessional contributions. Superannuation
funds have 30 days to release the money which can be paid to the individual or
directly to the ATO (depending on the instructions of the individual).
Penalties apply for non-compliance with these timeframes. The excess contributions tax assessment
may be amended by the Commissioner or at the request of the taxpayer within
four years after the date of the original excess contributions tax assessment. Release
authorities and payment of excess contributions tax Although early release of preserved
benefits is generally prohibited, a taxpayer will have the choice (in the case
of excess concessional contributions tax), or must (in the case of excess
non-concessional contributions tax), to have money released by their
superannuation fund to pay their excess contributions tax liability.
Regulations were registered on 13 April 2007, amending the SIS Regulations to
allow a superannuation fund to release preserved benefits where a release
authority is submitted to their superannuation fund in order to pay their
excess tax liability. A release authority is a written notice
authorising a taxpayer to withdraw money for the amount of their excess
concessional contributions tax or excess non-concessional contributions tax
from their superannuation fund to pay the tax liability. A release authority must be provided to
the taxpayer by the Commissioner as soon as practicable after making an excess
contributions tax assessment. A release authority must state the amount of the
excess concessional or non-concessional contributions tax the taxpayer is
liable to pay, be dated and contain other information the Commissioner
considers relevant. In the case of excess concessional
contributions tax the taxpayer may give the release authority to any of their
superannuation funds within 90 days after the date of the release authority.
Taxpayers are not required to withdraw an amount from their superannuation
funds to pay their excess concessional contributions tax liability. However, in the case of excess
non-concessional contributions tax, taxpayers must withdraw moneys from their
superannuation fund to satisfy the tax liability. Accordingly, taxpayers must
present a release authority for excess non-concessional contributions tax to a
superannuation fund within 21 days after the date of the release authority.
Failure to comply with this requirement will attract an administrative penalty
of 20 penalty units. Where a release authority is provided
to a superannuation fund, the fund must pay the required amount within 30 days.
Payment may be made directly to the Commissioner or to the taxpayer. If a
superannuation fund fails to comply with a release authority within 30 days, it
will be liable for an administrative penalty of 20 penalty units. If a person fails to present the
release authority to a superannuation fund or the fund has not released the
required amount of the money within the prescribed period, the Commissioner may
give the release authority directly to (one or more) funds on behalf of the
taxpayer. Notes q
Whether the tax is due in relation to
excess concessional or non-concessional contributions, the individual must pay
the due amount to the ATO within 21 days of receipt of the assessment. q
It may be risky for clients to wait on
funds to pay any excess contributions tax liability within 21 days so clients
may be better off paying the ATO directly and then reclaiming the amount from
the fund. q
The release authority must state the
amount of excess concessional contributions tax or excess non-concessional
contributions tax (whichever is applicable) that the person is liable for and
be dated and contain any other information that the commissioner considers relevant. q
A new condition of release has been
added to allow trustees of superannuation funds to release preserved benefits
to pay excess tax liabilities (the abolition of RBLs has removed excess
benefits tax). q
Penalties apply at both an individual
and fund level where either fails to comply with the rule in relation to
release authorities. Commissioner's discretion to
disregard or reallocate contributions Where a taxpayer has excess
contributions for a particular financial year and they consider that the excess
contributions were the result of circumstances beyond their control, they may
apply to the Commissioner for a written determination that the excess
contributions should be disregarded or allocated to another financial year. The
Commissioner will exercise his discretion to disregard or allocate excess
contributions to another financial year if there are special circumstances. Although each case will be decided on its merits, the
special circumstances must make it unjust, unreasonable or inappropriate to
impose the liability for excess contributions tax. The Commissioner may have
regard to the following when determining whether to exercise his discretion: q
whether the contributions made in a
particular financial year would be allocated more appropriately to another
year; and q
whether it was reasonably foreseeable a
particular contribution would result in a person having an excess contribution
when the contribution was made. The Commissioner can have regard to
particular agreements between a taxpayer and an employer to determine whether
the excess contribution is reasonably foreseeable. He can also take into
account the extent to which the excess contributions were outside the control
of the individual. A taxpayer who receives an excess
contributions tax assessment, must apply to the Commissioner to exercise his
discretion within 60 days of receiving the assessment, unless the Commissioner
allows a longer period. Source: Kaplan Education Pty Limited |
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