Return to full SMSF article list
HomeFree weekly newsletterFree newsletter archiveContact usLogin

Self Managed Super Fund (SMSF) Article
Making contributions to super

By Tony Negline.

This article may be out of date.

16th February 2010


Are you confused about when super contributions can be made?

You're probably not alone.  Most of the questions I get ask me to confirm how these contribution rules work.

For example, a typical question is, "I'm over 55 and I would like to know if the rule that allows me to contribute to super is …".  Unfortunately the inquisitor then often re-states a rule that has not applied for at least five years.

Some of the confusion might arise because there have been almost 60 changes to these contribution rules since the current super laws were introduced 16 years ago.

This large number of changes does not include an even bigger number of amendments which have been made to the tax concessions attaching to superannuation contributions.

The last big batch of changes to the contribution rules occurred in 2007 as part of the former Government's "Better Super" revolution.

Since the Rudd Government came to power it has, thankfully, made no changes in this area.  Hopefully this will remain the case whilst it holds the Treasury benches.

Here we will look at how a couple of super contribution rules interrelate.

If a person is aged under 65 at the start of a financial year then a super fund may be able to accept from an individual, during the whole financial year, non-concessional contributions of up to three times the non-concession contribution cap – NCC-cap.  The NCC-cap is currently $150,000 which means three times this amount is $450,000 in a financial year.

Non-concessional contributions are, principally, personal super contributions not claimed as a tax deduction.

Importantly, people under 65 do not have to satisfy any work test before making a super contribution.

If a super fund receives a non-concessional contribution greater than $450,000 from those under 65 then it must refund the excess.

The income tax laws will apply penalty tax rates when total non-concessional contributions made by an individual in a financial year exceed their NCC-cap.  But lets put this issue to one side, as our main focus here is on the making of super contributions.

In broad terms a person aged at least 65 but under age 75 is not allowed to contribute to super in a financial year unless they have been gainfully employed for more than 40 hours in less than any 31 day continuous period in the same year.  Gainful employment is defined as employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.

If they satisfy this rule then a super fund can accept a contribution which is not greater than the NCC-cap, that is, $150,000 in the financial year.

What rules apply if a person aged under 65 at the start of a financial year but makes a non-concessional contribution after they celebrate their 65th birthday in that year?

Because they were aged under 65 at the start of the financial year then they can contribute $450,000 in that year.

If this contribution is made after the person turns 65 but before the end of that financial year then the contributor must satisfy the gainful employment test in that year.

In effect we have one part of a super contribution rule mixed with a part of another rule.

Finally anyone who uses a Self Managed Super Fund needs to carefully examine their super fund's governing rules or trust deed before acting upon these super law contribution rules.

If the trust deed is more than three years old there is a good chance that it will insist that a member has to satisfy some sort of employment test before they can make a super contribution.  (Several years ago all superannuants had to meet a work test before contributing to super.)

To get around the cost of updating the trust deed, some SMSF trustees might decide to rely on their general compliance clause.  In many cases this clause allows a trustee to do anything that will not cause the super fund to loose its tax concessions.

The legal interpretation of what is permitted by such clauses is often highly technical.  The clause is often written in such a way that it stops a trustee from doing something the law prohibits but does not permit a trustee to do something even if the law allows it.  Its main purpose is to prevent the loss of tax concessions not to authorise transactions allowed by the super laws.

Some trust deeds are written quite broadly and say that a trustee can accept whatever contributions the super laws permit.  This looks like a good solution as it seems to be allowing any transaction approved by the super laws.

However as we have seen the super laws are not particularly static.  With these clauses the only way to provide an audit trail on which super law was used at a particular time is to ensure the record keeping for each transaction contains appropriate documentation that shows what particular law allowed the transaction.  Such an approach would most likely be very time consuming.

Disclosure: Tony provides consulting services to SUPERCentral Pty Ltd a trust deed supplier.

Return to full article list of SMSF articles


Share this article


[Bold fields are required]

Your details



Do you work in the financial services industry?


Site design by Raycon