This article is more than 24 months old and is now archived. This article has not been updated to reflect any changes to the law.
Superannuation law authorises the trustee to establish one or more reserve accounts for a fund. A reserve account is an account used by the trustee to set aside surplus assets of the fund which are not directly for the benefit of a member. Until amounts from a reserve are credited to a particular member's account in the fund, they do not constitute part of a member's benefits.
Trustees must ensure that reserves are managed in a manner consistent with the investment strategy and with the fund's ability to meet its liabilities.[1]
Transfers from reserves can be:
Placing contributions received by a fund into a reserve allows the trustee time to:[2]
The caps apply to limit the amount of contributions that receive favourable tax treatment that a member can make for a financial year.[3] If a member's contributions exceed the relevant cap, then the individual concerned is taxed on the excess.[4] Each year, the caps are adjusted to reflect inflation.
The amount of a member's cap — and the extra tax they pay if they exceed it — depends on whether the contributions are concessional or non-concessional contributions.
It is important to note that defined benefits funds and untaxed super funds (often referred to as "constitutionally protected" funds), are governed by special rules about contributions.
Concessional contributions are generally made to a fund for, or by a member, in a financial year and are included in the assessable income of the fund — for example: super guarantee contributions, salary sacrificed amounts and any amount a member is allowed as a personal super deduction in their income tax return. As they are contributions from before-tax income, or for which a tax deduction has been claimed, they are taxed when paid to the fund.
Non-concessional contributions are generally made to a complying fund by, or for, a member in a financial year and are not included in the fund's assessable income, as they are contributions from after-tax income.
The ATO has explained that non-concessional contributions include:[5]
Further, non-concessional contributions do not include:
The rate of tax assessable on a contribution to a SMSF depends on:
The non-concessional contributions cap for an income year is a multiple of the concessional contributions cap.[6]
For the 2009-2010 tax year, the contributions caps and tax rates are as shown in the table:
Concessional cap* |
Transitional concessional cap |
Non-concessional cap |
|
2009-10 financial year |
$25,000 |
$50,000 |
$150,000 |
Tax on amounts over the cap |
31.5% (in addition to the 15% paid by the super fund) |
31.5% (in addition to the 15% paid by the super fund) |
46.5% |
Other information |
Any concessional contributions in excess of the cap will also count towards the non-concessional contributions cap |
Any concessional contributions in excess of the cap will also count towards the non-concessional contributions cap |
If a member is under age 65 at any time during the financial year in which the contribution is made, then they can bring forward two years of contributions. Effectively allowing the member to contribute up to three times the cap at once, or at any time during the three financial years. |
Until 30 June 2012, a transitional concessional contributions cap applies for people aged 50 or over.
If a member is aged 50 or over, the annual cap for the 2009-10, 2010-11 and 2011-12 financial years is $50,000.
If a member has more than one fund, all concessional contributions made to all their funds are added together and count towards the cap. This cap is not indexed.
From the 2010-11 financial year, the non-concessional contributions cap will change as the concessional cap changes with indexation to reflect inflation.
The Income Tax Assessment Regulations[8] provide that an allocation from reserves to a member's account within the fund is counted against the member's concessional contributions cap for the year unless:[9]
You can read about how can you allocate a single contribution across two financial years here
If a member exceeds a contributions cap, then the ATO will send them:
For information please call Maddocks in Melbourne (03 9288 0666) or Sydney (02 8223 4100) and ask for a member of the Maddocks Tax and Revenue Team or Superannuation Team.
You can read earlier ClearLaw articles on a wide range of SMSF topics here.
Set up an SMSF
Update an SMSF deed
Set up an SMSF pension
Arrange SMSF borrowing lending docs:
Set up an SMSF corporate trustee
SMSF Death Benefit Nomination — binding or non-binding
An SMSF Death Benefit Agreement — binding and permanent
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[1] Superannuation Circular No. 11 D1, issued March 2006, paragraph 96. See section 52(2)(g) Superannuation Industry (Supervision) Act 1993.
[2] Crump, P., 4.1 Contributions Reserve, Pension Death Benefits: Anti-Detriment, Reserving Strategies.... and other issues, 4th Annual Self Managed Super Funds Conference, September 2009, pg 6.
[3] section 280-15(1) ITAA 1997.
[4] section 280-15(2) ITAA 1997.
[5] Super contributions - too much super can mean extra tax, ATO, available at: http://www.ato.gov.au/superfunds/content.asp?doc=/content/00106372.htm&page=7&H7.
[6] See subsection 292-85(2) of the Income Tax Assessment Act 1997.
[7] Super contributions — too much super can mean extra tax, Australian Taxation Office, available at: http://www.ato.gov.au/superfunds/content.asp?doc=/content/00106372.htm
[8] The Income Tax Assessment Regulations 1997 sub-regulation 292.25.01.
[9] Crump, P., 4.1 Contributions Reserve, Pension Death Benefits: Anti-Detriment, Reserving Strategies.... and other issues, 4th Annual Self Managed Super Funds Conference, September 2009, pg 9.
[*] The $25,000 concessional cap will be indexed annually from 2010-11 onwards to average weekly ordinary time earnings (AWOTE) and rounded down to the nearest multiple of $5,000.
Qualifications: BA, LLB, Deakin University
Sophie is a member of Maddocks Commercial team. She is a corporate and commercial lawyer with a particular focus on:
She regularly assists clients across multiple sectors including consumer markets (beauty and retail), industrial (manufacturing and distribution) and financial services. Her private sector clients include multinationals, private equity funds and founders.
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