According to the legislation, the transitional over-50s cap of $50,000 applies if you are 50 years or over on the last day of the financial year. A person turning 50 during a financial year can then make up to $50,000 in concessional contribution before penalty tax would apply to any further concessional contributions.

Based on the reading of section 292.20 of the Income tax (transitional provisions) Act 1997, it doesn’t seem to matter if you make the contribution before or after you turn 50 provided that you are 50 (or older) on the last day of the financial year in which you make the concessional contribution to your fund.

I explain these rules in more detail in the article Concessional contributions: Turning 50 is all about timing

For more information on concessional (before-tax) contributions, check out our Super concessional contributions: 2010/2011 survival guide

Related posts:

1. Concessional contributions: Turning 50 is all about timing
2. Super contributions: Turning 65 part-way through the year
3. Turning 65: Maxing out the after-tax contributions cap

I suggest you chat to a registered tax agent, typically an accountant to determine the best strategy for your circumstances, although you should be aware that it’s not possible to claim more than you earn as a tax-deductible super contribution. You are not permitted to claim a super contribution as a tax deduction if that super contribution creates a loss for tax purposes, or increases a loss.

You also need to decide whether making a super contribution to reduce your taxable income to zero is the most tax-effective option.

According to the ATO, only the amount of personal contributions that the ATO allows you as a deduction in your income tax return counts towards your concessional contributions cap. What this means is that the remainder of your personal contributions will count towards your non-concessional contributions cap. Presumably this triggers the bring-forward rules in the case where an individual has already made $150,000 in non-concessional contributions. I explain the bring-forward rules in the article Beef up your super using a bring forward.

As to the practical implications of having such a deduction denied, and what happens to the reporting of that part of the contribution that can’t be claimed as a tax deduction, it is possible to vary an intent to claim a tax deduction (see this link on the ATO website).

Note: In theory there is no limit on the amount you can claim as a deduction, subject to having income to claim against. The practical effect of the concessional (before-tax) contributions cap means that if you claim more than the concessional contributions cap, you will be hit with extra tax. You can find out more information about claiming deductions for personal super contributions by checking out this ATO fact sheet.

Background: For more information on when you’re eligible to make tax-deductible super contributions check out the SuperGuide article Who can make tax-deductible contributions?

Related posts:

1. Tax-deductible contributions: Meeting the 10% income test
2. Who can make tax-deductible contributions?
3. Tax-deductible contributions: timing the start of pension is essential

If your employer has not paid your super entitlements into your super fund, and your employer has gone out of business, chasing your Superannuation Guarantee entitlements can become more difficult.

Although the ATO has become more pro-active in chasing employers who fail to meet SG obligations (see article Super for Beginners, part 18: My employer hasn’t paid my SG. What can I do?), pursuing employers who may have no money becomes a serious issue.

One of the reasons for introducing the requirement to make quarterly SG payments (previously it was an annual requirement) was to minimise the non-compliance by employers, particularly if they went broke. The other compelling reason for regular payment of SG amounts was to ensure employees received the benefit of SG contributions, and derived investment earnings from those contributions, when they accrued the entitlement rather than at some distant later date.

Report your situation immediately to the ATO on the special ATO Superannuation Hotline by phoning 13 10 20. Explain the urgency of situation to the ATO. If other employees are affected, then it is highly likely one of your colleagues has already reported your employer. Even so, the more reports the ATO receives, the more likely the ATO will appreciate the urgency of your situation.

If an employer does go out of business, then the employees lose jobs and sometimes lose entitlements such as wages, SG contributions and annual leave and long service leave entitlements. When a business collapses, employee entitlements are paid before secured creditors such as banks. In practical terms, what this means is that after assets are sold (if any), then before anyone else, employees get paid wages and superannuation, then leave entitlements and then redundancy entitlements.

The bad news is: if there is no money left, then employees receive nothing unless they are eligible for the Federal Government’s General Employee Entitlements and Redundancy Scheme (see this link or phone 1300 135 040). This scheme protects employee entitlements, such as unpaid wages, accrued annual leave and long service leave, and up to eight weeks of redundancy entitlements for employees of companies that go broke (although the Gillard Government flagged improvements to payments prior to the August 2010 election). Compulsory employer super contributions (SG) don’t count as an employee entitlement for the purposes of a scheme, although any voluntary super contributions do count as an employee entitlement (up to 3 months’ worth). Voluntary super contributions include contributions made under a salary sacrificing arrangement (concessional contributions) and any non-concessional (after-tax) contributions intended to be redirected on your behalf by the employer. For more information about GEERs, click on the link in this paragraph.

When is SG payable under normal circumstances?

Your employer must pay your quarterly Superannuation Guarantee (SG) entitlements by a certain date (see table below), and most employers do the right thing. For the benefit of other readers I outline how an employee can check whether an employer has paid his or her Superannuation Guarantee (SG) entitlements.

How to check that your employer has paid your SG entitlements – in 3 steps

1. Check that the payment date has passed for your employer’s quarterly SG contribution (see table above). Your employer may pay your SG entitlements more frequently – monthly or even fortnightly.
2. Ask your employer, or your employer’s payroll officer if, and when the SG contribution was made.
3. Check with your super fund via the telephone, or via the internet (if you have online access to your super account details), that the SG contribution was received by the fund.

What information do I need to give to the ATO?

Before you phone the ATO on 13 10 20, try to collect the following information:

• Your tax file number
• Your employer’s Australian Business Number (ABN). You can find this number on the company’s stationery or on receipts etc
• Your employer’s name, address and contact details.

Related posts:

1. Super for beginners, part 18: My employer hasn’t paid my SG. What can I do?
2. Super for beginners, part 2: My first job
3. SG made easy: just add Medicare

The short answer is: the proportioning rule is a mechanism to calculate how much of a superannuation pension payment is tax-free, and how much is taxable. The proportioning rule is particularly important for those who retire before the age of 60, or belong to one of the older untaxed public sector funds, or for those who plan to leave super benefits to non-dependants after they die.

When tax-free super for over-60s was introduced in July 2007, the proportioning rule was also introduced and applies to all benefit payments paid from July 2007.

Super benefits can be made up of two components -‘tax-free’ and ‘taxable’. The tax-free component is always free of tax while the tax payable on the taxable component depends on the age of the SMSF member, and the size of the benefit.

According to the ATO, the tax-free and taxable components of a member’s super benefits must be paid in the same proportion as the tax-free and taxable components of the member’s interest in the super fund. This requirement is known as the proportioning rule. For example, if the super benefit is made up of 60% taxable component and 40% tax-free component, then the pension payment is to be paid out reflecting the 60% taxable and 40% tax-free component.

When do you apply the proportioning rule?

The taxable and tax-free components of a SMSF lump sum payment are calculated just before a lump sum is paid, while the components of a SMSF superannuation income stream (that is, pension) are calculated at the time the income stream is created.

Note: If you receive a SMSF benefit under the age of 60, the components of a super benefit are important because a fund member is likely to pay tax on the taxable component of a super benefit. The components remain important after you turn 60 if you intend to leave super benefits to a non-dependant, such as an adult child. I explain the tax payable on the taxable component of a death benefit paid to a non-dependant in the article Estate Planning: Dear Dad, Tax for everything.

How do you calculate the tax-free and taxable components?

The tax-free component is the total value of two segments:

• Contributions segment. This segment usually includes non-concessional (after-tax) contributions made from 1 July 2007, including spouse contributions and co-contributions. Any earnings on these contribution form part of the taxable component.
• Crystallised segment. Super funds must have calculated a crystallised segment as at 30 June 2007. The crystallised segment consolidates up to five pre-July 2007 benefit components. Most Australians have a crystallised segment that is made up only of pre-July 2007 after-tax contributions. If you have had super for a long time, then your crystallised segment may include a pre-July 1983 component.

Taxable component: The taxable component of a SMSF benefit is calculated by subtracting the tax-free component from the total value of the super benefit. The annual investment earnings on a member account form part of a benefit’s taxable component. Any concessional (before-tax) contributions also form part of your benefit’s taxable component.

Note: If you started your SMSF income stream before July 2007, and you’re under the age of 60, then your existing tax-free amount (formerly known as ‘deductible amount’) applies to your pension payments. When you turn 60, the proportioning rules are triggered and any payment of a super benefit must then reflect the relevant proportions of tax-free and taxable components that make up the total value of the superannuation interest, instead of the tax-free amount calculated before July 2007.

The ATO has produced two fact sheets on how the proportioning rule applies to:

• Lump sum benefits from a taxed super fund. Apart from certain public sector funds, all super funds are taxed. Click here to access the fact sheet
• Income streams from a taxed super fund. Click here to access the fact sheet

Related posts:

1. I’m 59 and I have $180,000 in super. Will my super be taxed?
2. Understanding the tax DNA of a super benefit
3. SMSF pensions: You stick with the original components

Trish’s response: I need to be careful that any response I provide is not taken for specific tax advice. Anyone considering tax minimisation strategies should consult with a registered tax agent, typically an accountant.

Are you eligible for SATO?

Generally speaking, any individual who has reached Age Pension age needs to work out whether they’re eligible for the Senior Australians Tax Offset (SATO). SATO is a tax rebate against tax payable on income, available to eligible taxpayers.

An individual who has reached Age Pension age (65 for men, and since Janauary 2010, 64 years for women) may be eligible for the Senior Australians Tax Offset (SATO).

If a person is eligible for the SATO, then such an individual can expect to receive a rebate (tax offset) for all or part of the income tax payable, subject to a person’s income falling within the SATO income thresholds. Some individuals can expect to pay no tax at all, or pay a lower amount of tax, compared with an individual who is not eligible for SATO. I explain how SATO works, and the income thresholds for SATO eligibility, in the article No tax in retirement because you SATO.

If your income exceeds the SATO thresholds however, then the tax bill on your income will be the same as other taxpayers earning similar income (see tax rate table later in the article).

New income test: ‘rebate income’

Note: Since the 2009/2010 financial year, reportable super contributions, such as personal deductible contributions and Superannuation Guarantee contributions are added back to an individual’s income when determining eligibility for SATO. The income test that applies to SATO (and to the pensioner tax offset) is ‘rebate income’.

According to the ATO, rebate income includes a person’s:

• taxable income
• adjusted fringe benefits (reportable fringe benefits x 0.535)
• total net investment loss
• reportable super contributions.

Personal income tax rates

The income tax rates for ordinary taxpayers for the 2010/2011 financial year are:

Source: ATO

Individuals on lower incomes may be eligible for the Low Income Tax Offset (LITO). If an individual is eligible for the maximum LITO ($1,500 for the 2010/2011 year), the effective tax bill is nil for those earning up to $16,000. The LITO gradually reduces as assessable income increases, and is no longer available when an individual’s assessable income reaches $67,500.

In relation to your question about the 30% tax rate: even where a person is eligible for SATO, the individual is subject to the same tax rates as other individuals when calculating the income tax payable. Making tax-deductible super contributions can reduce taxable income, and in turn reduce the amount of tax payable. In terms of SATO eligibility however, although SATO is a rebate that then reduces the final tax payable, making tax deductible super contributions no longer reduces income for the purpose of SATO eligibility. For more information on making concessional contributions, check out our guide, Super concessional contributions: 2010/2011 survival guide.

Related posts:

1. No tax in retirement because you SATO
2. Working longer reaps tax benefits for over-55s
3. For your convenience: Income tax rates for the 2010/2011 year

Trish’s response: Reducing the amount of income tax payable, including income tax payable on net capital gains, by making concessional (tax-deductible or salary sacrificed) super contributions remains a popular strategy.

Concessional contributions will be subject to 15 per cent tax when entering the fund. Note that the annual limit for concessional contributions is $50,000 for anyone aged 50 or over for the 2010/2011 year. The contribution cap is $25,000 (for the 2010/2011 year) for anyone under 50 years of age.

A self-employed or non-employed individual can only claim deductions for super contributions against assessable income, such as salary, investment income and capital gains.

Entering a salary sacrifice arrangement (making before-tax contributions to a super fund pursuant to an arrangement with an employer) is another popular strategy used to reduce an individual’s taxable income.

Related posts:

1. Know your super limits: Reducing CGT via concessional contributions
2. Managing CGT with super contributions
3. Non-cash contributions, CGT and contributions caps

Here’s the short story on the tax incentives surrounding superannuation. You receive tax incentives on superannuation at four different stages:

• when you, or your employer, makes concessional (before-tax) contributions
• when you receive a co-contribution. You’re eligible for a co-contribution when you make non-concessional (after-tax) contributions, and your annual earnings are below a certain level of income
• when your super fund earns income
• when you eventually receive your superannuation benefit.

Stage 1: Making concessional (before-tax) contributions

If you are an employee, your employer is required to contribute the equivalent of 9% of your salary to your super fund, known as Superannuation Guarantee contributions. Your employer receives a tax deduction for these contributions and your super fund must deduct 15 per cent tax on each contribution. For example, Hilary earns $55,000 plus 9% super. Each year her employer must make superannuation contributions, at least quarterly, worth an annual total of $4950.

You can also make voluntary superannuation contributions in addition to your employer’s contributions, although if you are over the age of 65, you must satisfy a work test.

You can make concessional (before-tax) contributions to a super fund. Concessional contributions fall into three main categories:

• Superannuation guarantee. An employer’s compulsory contributions to an employee’s super fund.
• Salary sacrificing for employees. If you can arrange for your employer to direct some of your before-tax salary to superannuation as contributions, your super fund deducts 15 cents in the dollar contributions tax rather than the Government imposing your marginal tax rate on that income, which can be up to 46.5 % (including 1.5 % Medicare levy). This type of arrangement is known as salary sacrificing. The employer will receive a tax deduction for this contribution — your employer would also have received a tax deduction if the contribution amount had been paid as cash salary.
• Tax-deductible contributions for self-employed or non-employed. You can make concessional contributions, more commonly known as tax-deductible contributions, if you are self-employed or not working. You are also eligible to make this type of contribution if you are employed, but you receive less than 10% of your total assessable income plus reportable employer super contribution, plus reportable fringe benefits from an employer. A 15 % contributions tax is deducted from any superannuation contribution that has been claimed as a tax deduction.

Stage 2: Making non-concessional (after-tax) contributions

A non-concessional contribution is a superannuation contribution from money from which you have already paid income tax at some point in the past. After-tax contributions are not hit with the 15 %t tax on contributions when entering a super fund.

If you make a non-concessional contribution, you may be eligible for a tax-free bonus from the government called the co-contribution if your assessable income is under $61,920 for the 2010/2011 year.

Stage 3: Paying less (or no) tax on earnings

The maximum tax that you will pay on your superannuation fund’s earnings is 15 cents in the dollar. A super fund pays tax on its earnings in three different ways:

• Contributions. Believe it or not superannuation contributions are treated as earnings/income of a super fund and subject to a 15% tax. We refer to a ‘contributions’ tax for ease of explanation, but legally this tax is really the same as the tax on a superannuation fund’s income.
• Earnings. Fund earnings are subject to a maximum of 15% tax. If your super fund owns Australian shares that pay franked dividends, your fund will pay less than 15% tax on its earnings. A franked dividend is a dividend that has pre-paid 30 per cent in company income tax.
• Capital gains. Any capital gains that your superannuation fund makes from the sale of fund assets is subject to earnings tax. If the asset sold has been held for more than 12 months, then the fund only pays tax on two-thirds of the capital gain. In effect, a tax rate of 10%.

Note: The superannuation system is split into two distinct phases:

• Accumulation phase. You are in this phase when you are still contributing to your superannuation fund and/or have not yet withdrawn your super benefit or started an income stream. Your fund pays up to 15% tax on concessional contributions and investment income.
• Pension phase. You are in this phase if you have commenced an income stream (pension) from a superannuation fund. Your super fund does not pay tax on investment income from assets that finance an income stream.

Stage 4: Accessing tax-free super benefits

The best news about super and tax is that when you access your super on or after the age of 60, you will receive your super benefits tax-free (with the exception of some public servants). That’s right. No tax for over-60s.

Related posts:

1. Super for beginners, part 6: Can I make concessional (before-tax) contributions while I’m unemployed?
2. Super for beginners, part 15: Super tax – as easy as 1-2-3
3. Super for beginners, part 16: Tax-free twice

Unfortunately, timing is very important when claiming a tax deduction for super contributions, and when starting a pension.

You must complete and lodge a ‘Notice of intent to claim or vary a deduction for personal super contributions‘ and supply it to your super fund before you start an income stream/pension if those tax-deductible (concessional) contributions form part of the pension assets.

The notice is now called a section 290-170 notice (formerly known as Section 82AAT notice).

Note that you must lodge this notice with your super fund, and receive acknowledgement from your super fund before you lodge your tax return. The trustee (you, when talking about a SMSF), then uses the notice to determine the treatment of the contributions for benefit component purposes, and to report the contributions in the super fund’s tax return.

Background: According to the ATO, you must lodge a notice of intent to claim a deduction with your super fund before whichever of the following occurs first:

• the day you lodge your income tax return for the year the contributions were made
• the end of the income year after the income year in which you made the contributions.

Related posts:

1. Concessional contributions: what form do I use to claim a tax deduction?
2. Who can make tax-deductible contributions?
3. Tax-deductible super contributions: Claim no more than your income

The 10% income test (also known as ‘maximum earnings as an employee’) has changed effective from July 2009.

An individual is able to claim a tax deduction for super contributions if he receives part of his income as an employee but less than 10% per cent of his assessable income and reportable fringe benefits are attributable to employment as an employee. Note that employment income includes reportable employer super contributions, such as salary sacrifice contributions, but doesn’t include Superannuation Guarantee contributions.

Assessable income is gross income before any deductions are allowed, and includes salary and wages, dividends, interest distributions from partnerships or trusts, business income (including personal services income), rent, foreign source income, net capital gains and a few other items. Reportable employer super contributions are also added back to assessable income when working out whether an individual satisfies the 10% test – the employment income divided by total income must be less than 10% for an individual to claim a tax deduction for his or her own super contributions.

I explain the rules for tax-deductible super contributions in more detail in the article Who can make tax-deductible contributions?

I suggest you chat to a registered tax agent, typically an accountant to determine the best strategy for your circumstances.

Background: According to the ATO website:

You are eligible to claim a deduction if:

• your super fund or RSA provider has acknowledged your notice of intent and agreed to the amount you intend to claim as a deduction.
• you satisfy the ‘maximum earnings as an employee’ condition
• you meet the age-related conditions
• you made personal contributions to a complying super fund or a retirement savings account (RSA)
• you made the contributions in order to obtain super benefits for yourself, or for your dependants in the event of your death
• you have written to your super fund or RSA provider, in the approved form Deduction for personal super contributions (NAT 71121, PDF 188KB), and advised them of the amount you intend to claim as a deduction

Related posts:

1. Who can make tax-deductible contributions?
2. Tax-deductible super contributions: Claim no more than your income
3. Super for beginners, part 6: Can I make concessional (before-tax) contributions while I’m unemployed?

Due to the number of questions that we receive, it’s not possible to answer every question but we do try to answer the most popular questions (or questions significant for the most readers), or cover several questions in one broader article. All the questions that we receive from readers help us to develop the content for the website, even when you don’t receive a direct response (although all emails are acknowledged).

We have lots and lots of articles and Q and As on this site, which we update regularly and I recommend anyone with questions on any topic to check out our existing content in case we have already answered a similar question or featured the issue you are concerned about in an article. You can click on the categories bar at the top of the home page or type in key words to our search facility. We also have age-based guides that we are currently developing to make it easier to access information on the site.

For the 2010/2011 year, we have updated all content and Q and As relating to the contribution rules, and we are in the process of updating the rest of the site, where necessary. Note that we are constantly monitoring the site to ensure we remain as current as possible, so if you believe that any of our articles are out-of-date, please let us know.

20 popular superannuation contribution questions answered

Making super contributions (and the rules applicable to the different types of contributions) is one of the more popular topics featured in our Q and As. Listed below are 20 popular Q and As about the contributions rules, updated for the 2010/2011 year. Click on the links immediately below the numbered headings to access the relevant Q and A.

Tip: Our contributions survival guides are also very popular with SuperGuide readers, and we have now updated them for the 2010/2011 year. You can check out the guides by clicking on the links at the right-hand side of the home page, or by clicking on the links at the bottom of this page.

1. How do the contributions caps work?

Wearing two contributions caps

2. Does the contributions cap apply from Jan to Dec, or July to June?

Contributions caps relate to financial years, not calendar years

3. I’m retired. Can I make super contributions?

I’m retired. Can I make super contributions?

4. Can I claim a tax deduction for my super contributions?

Who can make tax-deductible contributions?

5. Can I make concessional contributions while I’m unemployed?

Super for beginners, part 6: Can I make concessional (before-tax) contributions while I’m unemployed?

6. I turn 50 part-way through the year. Can I take advantage of the higher concessional cap for over-50s?

Concessional contributions: Turning 50 is all about timing

7. I earn a high income. Is there a limit to how much Superannuation Guarantee my employer must pay?

Upper limit on SG contributions

8. If I salary sacrifice, will I lose some of my Superannuation Guarantee entitlements?

SG: Beware the salary sacrifice loophole

9. Can I reduce my salary via salary sacrifice to claim the co-contribution?

Changes to co-contribution rules kill salary sacrificing strategy

10. Do my employer’s SG contributions count towards my concessional cap, and what happens if I exceed the cap?

Making super contributions: cracking concessional cap means more tax

11. If I turn 65 part-way through the year, can I still take advantage of the non-concessional bring forward rules?

Turning 65: Maxing out the after-tax contributions cap

12. If I trigger the bring forward rules when I am 64 (under the special rules), can I make super contributions after turning 65 without having to satisfy the work test?

Beef up your super using a bring forward

13. How can I reduce my personal capital gains tax bill by making super contributions?

Managing CGT with super contributions

14. Which contributions cap is relevant if I want to reduce my CGT bill?

Know your super limits: Reducing CGT via concessional contributions

15. Can I transfer assets in my name into my SMSF?

Non-cash contributions, CGT and contributions cap

16. How can I help my spouse grow her super account?

Super for beginners, part 7: Can I split my super benefits with my spouse?

17. Can I split my super contributions with my spouse?

Boosting your spouse’s super account

18. Can I still use the re-contribution strategy to cut my super tax bill?

Non-concessional contributions: recontribution strategy still applies

19. Can I reduce my income via salary sacrificing to claim the Family Tax Benefit?

Salary sacrificed contributions count for Family Tax Benefit

20. I’m 65. Can I make super contributions?

65 and over: Making super contributions

Note: The Q and As listed in this article are merely a guide to assist you with the general rules concerning super contributions. You will need to confirm your personal circumstances with your employer, super fund, the ATO, or accountant/adviser where applicable.

Contributions guides

You can access the contribution guides by clicking on the links below:

• Your 2010/2011 guide to non-concessional (after-tax) contributions
• Super concessional contributions: 2010/2011 survival guide
• Cashing in on the co-contribution rules (2010/2011 year)

Related posts:

1. Making super contributions: cracking concessional cap means more tax
2. 65 and over: making super contributions
3. For over-65s: Ten super tips when making contributions

You are referring to the Federal Government’s response to the Henry Tax Review report. In the Government’s response, it announced that Australians aged 50 or over will retain the $50,000 cap for concessional (before-tax) contributions from July 2012, subject to satisfying certain conditions.

According to the announcement, individuals aged 50 or over can continue to access the $50,000 concessional cap (which will be indexed) provided that the individual’s superannuation account balance is less than $500,000. From the information on the Government’s tax reform website, it is not clear whether the $500,000 rule applies only when you reach 50, or whether it applies whenever you want to make contributions on or after the age of 50. The Government intends to consult with the super industry about the mechanics of the $500,000 threshold.

Although the detail on the policy change to the concessional caps is not yet clear, but my understanding is that the $500,000 threshold will be on the total account balance, regardless of whether you have made concessional or non-concessional contributions.

Now that an election has been called, I don’t believe that you can rely on the Henry Review announcements until we know which political party will be in power. I will update the site when I have further information on this policy announcement.

Related posts:

1. Over-50s contributions cap of $50,000 now permanent, for some
2. Superannuation Guarantee now fairer to older workers
3. Wearing two contributions caps

SuperGuide is an information site rather than an advisory site so I suggest you also chat to a registered tax agent, typically an accountant, about how any tax strategy applies to your personal circumstances.

Making super contributions

I explain how an individual can manage capital gains tax by making concessional (before-tax) contributions in the article Managing CGT with super contributions.

Note: As an employee, the ability to make tax-deductible super contributions is limited, although it is possible to increase the amount of concessional contributions via a salary sacrifice arrangement with an employer. You may need to chat to your accountant about other possible tax management strategies.

Anyone considering moving cash or assets into a super fund is still subject to the contributions caps applicable for the relevant year. The concessional contributions cap for the 2010/2011 year is $25,000 for under-50s, and $50,000 for over-50s. The non-concessional (after-tax) contributions cap is $150,000 (for the 2010/2011 year).

If an individual plans to eventually transfer personally held shares into a super fund, then the fund’s trust deed must permit in specie contributions. An individual can choose to make concessional (before-tax) or non-concessional (after-tax) contributions as in specie (non-cash) contributions.

Fund purchases shares from members

A SMSF can also purchase limited categories of assets from fund members or related parties. A super fund can purchase an asset if it falls into one of the following categories:

• Listed securities. A listed security listed for quotation on an ‘approved stock exchange’ or licensed market. In Australia, the approved exchanges are: the Australian Securities Exchange, and the Bendigo and Newcastle exchanges. You can also transfer international shares listed on more than 120 exchanges around the world, including London, Hong Kong and New York exchanges.
• Term deposits.
• Managed funds. The managed fund must be a widely held unit trust, typically a retail or wholesale managed fund that has more than 20 unit holders.
• Business real property. Business real property relates to land and buildings used wholly and exclusively in a business, and can include offices, shops, factories and even farms.
• In-house assets valued at less than 5% of fund assets. In-house assets are investments in, or loans to, or leasing arrangements with, related parties. Note that the Cooper review has recommended the banning of in-house assets within SMSFs.

CGT relates to personal income, not fund income

If a SMSF purchases an allowable asset from a fund member, then any capital gains on the sale of that asset is the liability of the fund member, not the super fund. The 10% tax that you refer to in your question relates to the effective rate of tax on capital gains derived within a SMSF. I explain the taxes applicable to superannuation income in the article Super tax – as easy as 1-2-3.

If an individual makes an in specie (non-cash) contribution in the form of listed shares or other assets, any capital gains on the transfer is again the liability of the fund members. The value of an in specie contribution will be the market value of that asset at the time of transferring the asset into the SMSF. If the asset transfer triggers a profit on the sale of the asset, the individual may have to pay tax on the capital gain. Depending on the person’s tax bill, and employment status, it may be possible to offset all or part of the CGT liability by making concessional (before-tax) superannuation contributions in the year that the CGT is incurred.

Related posts:

1. Capital gains: Reducing tax via super contributions
2. CGT calculations for SMSFs
3. Managing CGT with super contributions