If you want your SMSF to enjoy concessional tax treatment, make sure it complies with the SIS contribution rules.
SIS Contribution Rules
The SIS contribution rules tell you what contributions your SMSF can or can’t accept. If you fall foul of these rules, the penalties are tough. Your entire fund will loose its concessional tax treatment. Not just a specific transaction but the entire fund. So it is important to get this right.
When it comes to contributions into super funds, there are two hurdles to take. Two sets of rules to comply with. The SIS contribution rules and then the tax contribution rules.
SIS Contribution Rules
The SIS contribution rules are about whether the fund is even allowed to accept a specific contribution. Reg 7.04 SIS Regulations will tell you that.
Any contributions that don’t meet the conditions of Reg 7.04 need to go back to where they came from. If they don’t, all hell will break lose. Your entire SMSF will loose its concessional tax treatment with all fund income taxed at the top marginal rate.
Only if a contribution has passed this first hurdle – the fund is allowed to accept it – do you even need to worry about the tax contribution rules.
Tax Contribution Rules
The tax contribution rules – the second set of rules – sit in ITAA97. These rules will tell you how to treat a contribution for tax purposes, once it has been accepted. Any contributions that exceed the caps, work tests and age limits in ITAA97 are likely to trigger additional tax.
But these rules are a lot more gentle. Penalties will only affect the specific contribution at your marginal tax rate. Not your entire fund at the top marginal tax rate. Big difference.
So in this article let’s focus on the tough ones – the SIS contributions rules Which contributions is your SMSF allowed to even accept? What are acceptable super contributions per reg 7.04 SIS Regulations?
Reg 7.04
Reg 7.04 lists what contributions a super fund can and can’t accept. It is very black and white. A contribution is either ok or it is not ok. If a contribution doesn’t meet the conditions set out in reg 7.04, the contribution needs to go back to where it came from.
Compliance with reg 7.04 means that your SMSF maintains its status as a complying super fund and concessional tax treatment. It means your SMSF doesn’t have to tax all income at the top marginal rate. So making sure you comply with reg 7.04 is worth the effort.
Mandated Employer Contributions
No matter your age, your super fund must accept any mandated employer contributions. For this you can thank Dr Ken Henry who led the Henry tax review published in 2010.
Mandated employer contributions are defined in reg 5.01 (1). Usually they just include the 9.5% superannuation guarantee (SG) payments your employer has to pay. But sometimes your employer also has to pay you super through an award or agreement. Your fund has to accept all of these as mandated employer contributions.
SuperStream is to better capture and track mandated employer contributions.
Voluntary Contributions
In addition to mandated employer contributions, your super fund might receive voluntary contributions. Your employer might voluntarily pay you additional super. Or you personally make member contributions as defined in reg 5.01 (1).
This is where it gets tricky. Whether your super fund has permission to receive these contributions depends on your age and employment status. Beside that make sure your fund has your tax file number (TFN), since it can only accept your member contributions per 7.04(2) SIS Regulations, if it does.
Under 65
As long as you are under 65 as of 1 July of the relevant financial year, all this is easy. Your super fund can accept any concessional contributions. It can also accept any non-concessional contributions within the 3-year-bring-forward rule.
Per SIS reg 7.04 (3) your fund can accept non-concessional contributions up to three times the non-concessional contributions cap per s292 -85(2) ITAA97 and reg 7.04 (7) SIS Regulations, but not more. This is the 3-year-bring-forward-rule. The current non-concessional contributions gap is $100,000, so the three-year-forward rule allows contributions of up to $300,000 over a period of three years.
65 to 75
Between 65 to 75 voluntary contributions get more tricky. Still possible, but trickier. And when we say 75, we mean 28 days past the month you turn 75.
Your fund can only accept additional contributions if you are gainfully employed on at least a part-time basis during the financial year in which the contributions are made. The three-year-bring-forward rule no longer applies, so non-concessional contributions are limited to $100,000 per year.
You are “gainfully employed on a part-time basis during a financial year” per reg 7.01(3) SIS Regulations if your are gainfully employed for at least 40 hours in a period of not more that 30 consecutive days in that financial year. This roughly equals to 10 hours per week.
75 and Older
Once you have passed the 28th day of the month that follows the month you turned 75, the door is closed. No more additional contributions. Any additional super paid into your fund needs to go back to where it came from.
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So this is what the SIS contribution rules are about. If you get stuck, please just email or call. There might be a simple solution to your problem.
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Disclaimer: numba does not provide specific financial or tax advice in this article. All information on this website is of a general nature only. It might no longer be up to date or correct. You should contact us directly or seek other accredited tax advice when considering whether the information is suitable to your circumstances.
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