Beware your superannuation contributions don't already exceed the cap

The Tax Commissioner recently issued a ruling to clarify the definition of a 'contribution' made to a superannuation fund, approved deposit fund or retirement savings account. This ruling (TR 2010/1) issued on 25 February 2010 applies before and after the date of issue.

Given excess contributions can attract up to 93% excess contributions tax, it's important to ensure you don't exceed these caps. The ATO have also warned their audit focus will concentrate on excess contributions, particularly from non-cash sources.

In the superannuation context, a contribution is anything of value that increases the capital of a superannuation fund provided by a person whose objective purpose is to benefit one or more particular members of the fund or fund members in general.

A superannuation contribution can be made by:

• Transferring funds to the superannuation provider.
• Rolling over a superannuation benefit from another superannuation fund.
• Transferring an existing asset to the superannuation provider.
• Creating rights in the superannuation provider.
• Increasing the value of an existing asset held by the superannuation provider.
• Paying an amount to a third party for the benefit of the superannuation provider.
• Forgiving a debt owed by the superannuation provider.
• Shifting value to an asset owned by the superannuation provider.

Examples of non-cash superannuation contributions which may exceed your contribution caps include:

• Improvements to property held by the fund which increases the value of the property.
• Maintenance is performed on a property held by the fund at less than market value i.e. where a friend of a fund member donates $5,000 of repairs to a property held by the fund, the ATO may deem this as a contribution.
• A member of the fund transfers their personal interest in a company to the fund (e.g. shareholding)
• A fund member uses their own money to pay the debts of the fund, without being reimbursed from the fund for these costs (e.g. annual accounting fees).
• The members of a fund are covered by a life insurance policy and the fund is reimbursed for the insurance premium cost.
• The fund buys shares, paid for by a member without reimbursement from the fund.

Contributions can be categorised as either concessional or non-concessional.  Concessional contributions are generally before tax contributions you or your employer make to your superannuation fund and non-concessional contributions are generally after-tax contributions.

The concessional contributions are summarised below:

Non-concessional contributions are capped at $150,000 a year, regardless of the member's age. However if you are under 65 years of age at the start of the financial year, you can "bring forward" two years of non-concessional contributions which effectively allows you to contribute up to three times the non-concessional cap at once or anytime during the three year period (i.e. contribute up to $450,000).

To ensure you don't exceed your caps you should review your super contributions regularly and if necessary, adjust your level of contributions.  As contributions are counted against caps in the year in which they are received and credited to your super fund account, you should also be conscious of timing.

Accurate reporting of contributions is also important, as the ATO relies on this information to determine whether contribution caps have been exceeded. There are penalties the ATO will apply for supplying false and misleading information.

If you are concerned about exceeding the contribution caps, would like more information about any excess contributions tax you may incur this year and whether you can take steps before the end of financial year to address your circumstances, please contact our office on 03 9869 5900 or email us.