Non-concessional Contributions

As a concessional measure the government introduced the ‘bring-forward’ rules for non-concessional contributions by SMSF members. These rules were introduced to enable larger ‘one-off’ contributions to be made which were in excess of the existing $150,000 non-concessional contribution cap, without being subjected to excess contributions tax.

In order to be eligible for the bring-forward rules the taxpayer must be less than 65 years of age in the year the additional contributions are made. The following table provides 2 different scenarios which utilise the ‘bring forward’ rule.

Salary Sacrifice into your SMSF

Salary Sacrifice (or Salary Packaging) into your superannuation is another tax effective strategy to increase your superannuation balance before retirement. There are a number of benefits to such a strategy, they are:

-          it reduces your taxable income so you pay less tax

-          by reducing your taxable income it optimises the taxpayers position in regards to matters that are tied to their taxable income, such as child support payments.

-          It increases your superannuation balance upon retirement.

However if you are considering entering into a salary sacrifice arrangement with your employer it is important to be mindful of the reduced concessional contribution caps. If your employer contributes an amount above the cap you will be liable for excess contributions tax which will diminish the tax effectiveness of such a strategy.

Excess Contributions Tax

If in any year you exceed your concessional or non-concessional contributions cap you will be liable for excess contributions tax. At a minimum the excess contributions for the year will be taxed at 46.5%, which consists of:

-          15% standard contributions tax (payable by the fund)

-          31.5% excess contributions tax (payable by the individual)

Thus due to the penalising nature of the excess contributions tax (losing nearly half of your excess contributions for the financial year) it is important be mindful of the contribution caps throughout the year. Particularly if you have triggered the bring forward rule in a prior year.

Although careful management is required, SMSF trustees can reduce their personal taxation position considerably by getting more money into the concessionally taxed environment of an SMSF.