You ask a very popular question, and the rules relating to making super contributions for an individual turning 65 during a financial year are a little peculiar, due to the operation of the over-65s work test and the operation of the bring-forward rules for non-concessional contributions.

The response outlined below is of a general nature, and you will need to verify the rules applicable for your own unique circumstances with the ATO, or your accountant or adviser.

1. The general rule is that if an individual is under the age of 65 on 1 July of a financial year, then that individual can contribute more than $150,000 in non-concessional contributions (for the 2010/2011 year) triggering the bring-forward rules.
2. More specifically, an individual can bring-forward up to two years’ worth of non-concessional contributions in the year that they turn 63 or 64, but that doesn’t mean they can make super contributions beyond age 65 without satisfying a work test. For more information see article Beef up your super using a bring forward.
3. If an individual turns 65 during a financial year, and wants to make a non-concessional contribution after turning 65, then he or she must satisfy a work test.
4. After turning 65, the maximum non-concessional contribution each year is $150,000 (for the 2010/2011 year). Generally speaking, the bring-forward is no longer available, EXCEPT in one unique instance. In the year that an individual turns 65, he or she can make a non-concessional contribution greater than $150,000 (for the 2010/2011 year) triggering the bring-forward rule after turning 65, provided they meet the work test before making the super contribution.
5. The work test that enables over-65s and under-75s to make super contributions involves working 40 hours in any 30-day period in the financial year in which you intend to make the contribution.
6. In short, an individual who is 64 on 1 July of a financial year can take advantage of the bring-forward rules and make up to $450,000 (for the 2010/2011 year) in non-concessional contributions. If they make those contributions after turning 65 in that same financial year, then they can still take advantage of the bring-forward rules but they must satisfy a work test before contributing. For more information see article Turning 65: Maxing out the after-tax contributions cap.

Related posts:

1. Turning 65: Maxing out the after-tax contributions cap
2. Super contributions: Turning 50 part-way through the year
3. Beef up your super using a bring forward

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

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

Background: The co-contribution is a tax-free super contribution from the Federal Government when you make a non-concessional (after-tax) contribution. If your ‘total income’ is $31,920 or less (for the 2010/2011 year), the Federal Government pays $1.00 for every dollar you contribute to your super fund in after-tax dollars, up to a maximum of $1,000 a year. If your ‘total income’ is more than $31,920, your co-contribution entitlement reduces by 3.33¢ for every dollar you earn over $31,920, until it cuts out at $61,920.

Generally speaking, an individual is eligible for the co-contribution where the individual has been an employee, or carried on a business during a financial year, even for part of the year, subject to satisfying the work test, income test and age test associated with the co-contribution scheme.

Retiring in a financial year will not necessarily preclude someone from claiming the co-contribution, but it may affect an individual’s ability to meet the co-contribution work test (10% or more of total income from employment or carrying on a business, or a combination of both).

I explain the eligibility rules in the article Cashing in on the co-contribution rules. The ATO website also has some useful information on the co-contribution rules: For example, quoting directly from the ATO website:

You may be eligible for the super co-contribution if all of the following apply:

• you make an eligible personal super contribution by 30 June each year into a complying super fund or RSA and don’t claim a deduction for all of it
• your total income (minus any allowable business deductions) is less than the higher income threshold
• 10% or more of your total income is attributable to eligible employment-related activities, carrying on a business or a combination of both
• you are less than 71 years old at the end of the year of income
• you are not the holder of a temporary visa at any time during the income year, unless you are a New Zealand citizen or holder of a prescribed visa
• you lodge your income tax return for the relevant income year.

Your super fund needs your tax file number (TFN) before it can accept your personal contribution or a super co-contribution from us.

Related posts:

1. Co-contributions: Can I claim the tax-free bonus as a property investor?
2. Cashing in on the co-contribution rules (2010/2011 year)
3. Super contributions: Turning 65 part-way through the year

Background: The co-contribution is a tax-free super contribution from the Federal Government when you make a non-concessional (after-tax) contribution. If your ‘total income’ is $31,920 or less (for the 2010/2011 year), the Federal Government pays $1.00 for every dollar you contribute to your super fund in after-tax dollars, up to a maximum of $1,000 a year. If your ‘total income’ is more than $31,920, your co-contribution entitlement reduces by 3.33¢ for every dollar you earn over $31,920, until it cuts out at $61,920.

You must satisfy certain requirements to be eligible for the co-contribution. Quoting directly from the ATO website:

You may be eligible for the super co-contribution if all of the following apply:

• you make an eligible personal super contribution by 30 June each year into a complying super fund or RSA and don’t claim a deduction for all of it
• your total income (minus any allowable business deductions) is less than the higher income threshold
• 10% or more of your total income is attributable to eligible employment-related activities, carrying on a business or a combination of both
• you are less than 71 years old at the end of the year of income
• you are not the holder of a temporary visa at any time during the income year, unless you are a New Zealand citizen or holder of a prescribed visa
• you lodge your income tax return for the relevant income year.

Your super fund needs your tax file number (TFN) before it can accept your personal contribution or a super co-contribution from us.

For an individual to be eligible for the co-contribution, one of the tests includes a work test. In a financial year, an individual must earn 10% or more of their income from eligible employment, or 10% or more of their income from carrying on a business, or a combination of both, to be eligible for the co-contribution. For satisfying the 10%-plus work test (see co-contribution test number one earlier in the article), however, you are measured against your gross business income.

You will need to confirm your circumstances with the ATO: if the ATO considers that receiving rental income from property investments is income from carrying on a business, than it’s safe to accept that an individual receiving that income is eligible for the co-contribution.

Note: In most cases, receiving rental income from property investments is not considered to be carrying on a business.

For more information on eligibility, check out our co-contributions guide, Cashing in on the co-contribution rules.

Related posts:

1. Co-contributions: Can I claim the tax-free bonus for the financial year that I retire?
2. Cashing in on the co-contribution rules (2010/2011 year)
3. Tax-deductible super contributions: Claim no more than your income

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

The short answer is no, even though special rules apply when an individual is aged 63 or 64. The special rules that apply when an individual is aged 63 or 64 mean that yes, an individual can bring-forward up to two years’ worth of non-concessional contributions in the year that they turn 63 or 64, but that doesn’t mean they can make super contributions beyond age 65 without satisfying a work test.

I suggest you also read my article Turning 65: Maxing out the after-tax contributions cap explaining a strange quirk in the work test rules where an individual is under the age of 65 at the start of a financial year, but makes a super contribution after they turn 65 in that same financial year.

For the benefit of other readers, I will now provide a fuller response and explain how the ‘bring forward’ rules work for all age groups under the age of 65. The response I provide is of a general nature and you will need to confirm your personal circumstances with the ATO, or an accountant/adviser.

Bring-forward rules – a quick summary

The annual non-concessional (after-tax) contributions cap is currently $150,000 (for the 2010/2011 year), but individuals under the age of 65 can ‘bring forward’ up to two year’s worth of non-concessional contributions. In other words, an individual can contribute up to $450,000 in one year representing the contributions cap for three years.

If you’re under the age of 65, as soon as an individual contributes more than $150,000 (for the 2010/2011 year) in a financial year, say, $160,000, or even $150,001, then such an amount automatically triggers the bring forward rules for the following two years. For example, if Bill makes a non-concessional contribution of $160,000 in the 2010/2011 year, then he can make up to $290,000 in non-concessional contributions in total over the following financial years (2011/2012 and 2012/13), taking the amount over three years to $450,000.

The following is an extract from SuperGuide’s Your 2010/2011 guide to non-concessional (after-tax) contributions, where I provide three examples of how the ‘bring forward’ rules can work:

…Let’s look at three examples.

• A $450,000 non-concessional contribution in one year: If you make a $450,000 non-concessional (after-tax) contribution to your super fund during the 2010/2011 year, say on 15 March 2011, you’re bringing forward two years of contributions for the purposes of the non-concessional contributions cap. You then cannot make another non-concessional contribution until July 2013 (that is, the 2013/2014 year).
• A $300,000 non-concessional contribution in one year: If you make a $300,000 after-tax contribution during the 2010/2011 year, say on 15 March 2011, that only brings forward one year of contributions, but it means you trigger the bring-forward rules for the next two years. You then can only make another $150,000 in non-concessional contributions during the period that ends on 30 June 2013.
• A $180,000 non-concessional contribution in one year: If you make a $180,000 after-tax contribution during the 2010/2011 year, say on 15 March 2011, the $30,000 above the annual $150,000 cap triggers the bring-forward rules, which means over the next two years, you can make only $270,000 in non-concessional contributions.

When you’re aged 63 or 64

By making a non-concessional contribution that is greater than the annual cap, you automatically trigger the bring-forward rules.

Special rules apply if you’re aged 63 or 64 and you want to make a non-concessional contribution in a financial year that is greater than $150,000 (for the 2010/2011 year). The difficulty for an individual aged 63 or 64, who intends to contribute up to the maximum allowable in the following two years, is that they will reach the age of 65 after one year, if aged 64, and after two years, if age 63. The super rules indicate that anyone aged 65 or over who wants to make a super contribution in a financial year, must satisfy a work test in the financial year in which they intend to contribute.

For an individual who is aged 63 or 64, the bring-forward rules work in the following way: An individual can make up to $450,000 in a single year representing one or two years of contributions over a period when that person would have been 65, without having to satisfy a work test during those years (because the contribution was made when the individual was 63 or 64, under the bring-forward rules). This rule doesn’t mean that the individual can actually make super contributions as part of the bring-forward rules in those later years. A bring-forward can only be triggered, and utilised, by someone under the age of 65.

Background: Anyone aged 65 or over must satisfy a work test, before contributing. If you’re aged 65 or over (but under the age of 75), you can make super contributions if you’re at least gainfully employed on a part-time basis. In short, you must work for at least 40 hours in a period of not more than 30 consecutive days in the financial year in which you plan to make a super contribution. For more information on contributing to super after the age of 65 see article: For over-65s: Ten super tips when making contributions.

When you’re aged 65 or over

The ‘bring forward’ rules are not available to Australians aged 65 or over. If you’re over the age of 65, and you contribute more than $150,000 in non-concessional contributions then expect to get hit with an excess contributions tax bill. What this means is that the most you can make in non-concessional (after-tax) contributions is $150,000 (for 2010/2011 year) in a single financial year, unless you’re willing to cop penalty tax of 46.5% on the excess contribution. I explain the implications of exceeding contributions caps and penalty tax in the article Super tax alert: Have you counted your super contributions lately?

Related posts:

1. Turning 65: Maxing out the after-tax contributions cap
2. Super contributions: Turning 65 part-way through the year
3. 65 and over: making super contributions

If you joined a super fund before July 2007, or started your current job before July 2007, then your fund may not have your TFN. Effective from 1 July 2007, when you give your TFN to your employer on a TFN declaration (NAT 3092), your employer must forward your TFN to your super fund.

If you’re not sure whether your fund has your TFN, check your member statement from your fund, or contact your super fund. If your super fund doesn’t have your TFN, you can expect the following to happen:

• No TFN: More tax on concessional contributions. If your super fund doesn’t have your TFN, then your employer’s Superannuation Guarantee contributions, and any other concessional (before-tax) contributions, are subject to the top marginal tax rate plus Medicare levy (46.5%) rather than 15%. If you’re eligible to claim tax deductions for super contributions, and your super fund doesn’t have your TFN, then expect the same tax hit.
• No TFN: Forget about non-concessional contributions. You cannot make non-concessional (after-tax) contributions unless your super fund has your TFN.
• No TFN: Forget about receiving the co-contributions. If your super fund doesn’t have your TFN, then you cannot make non-concessional contributions which means that you cannot participate in the co-contribution scheme. You can read about the co-contribution scheme in the article Cashing in on the co-contribution rules (2010/2011).

Note: If you run your own fund (that is, a self-managed super fund), then your personal TFN should already be in your fund’s records, but check anyway.

Related posts:

1. Super for beginners, part 19: My employer has gone broke. What happens to my SG entitlements?
2. Super for beginners, part 3: Why aren’t my super contributions tax-free?
3. Super for beginners, part 17: Four must-knows about super’s tax rules