SMSF Technical Education & Strategies

Types of SMSF Contributions

There are a number of different types (and sub-types) of contributions that can be made to a SMSF:

 

Concessional contributions

Concessional contributions are generally those where a tax deduction has been claimed for the contribution, either by the member or by an employer. Concessional contributions include the following sub-sets of contribution types:

Mandated employer contributions

 

Mandated employer contributions are contributions made by an employer for the benefit of a fund member. These contributions include :

 

- superannuation guarantee contributions

- superannuation guarantee shortfall components

- award or certified agreement related contributions

- payments from the Superannuation Holding Accounts Reserve

 

So in a nutshell, these are mainly those contributions that your employer has to make on your behalf. Your SMSF can accept these mandated employer contributions for members at any time. This means your SMSF may accept them regardless of your age or the number of hours you are working at that time.

 

Salary sacrifice contributions

These are the voluntary superannuation contributions made by an employer to your member account over and above their Superannuation Guarantee (Administration) Act 1992 or award obligations. These contributions are made to your SMSF account instead of to you as an employee receiving that amount as salary. The objective here is that these amounts form part of the assessable income of the SMSF with a tax rate of 15%, rather than being passed to you as salary and taxed at your own individual tax rate, which may be as high as 46.5%.

 

Personal contributions by self employed

These are the voluntary personal contributions that you make to your SMSF, where you claim a tax deduction for the contribution amount. This is generally only allowed if you are substantially self employed (i.e. 10% or less of your assessable income and reportable fringe benefits come from employment activities, including directorships). This includes in-specie asset contributions (see below for more on in-specie contributions*)

 

Allocations from a reserve that are not "reasonable".

These are allocations to a member's account from a 'reserve' which can be kept within your SMSF (see article on Reserves for more info). If these allocations are made within a certain set of parameters, then the allocations are not treated as concessional contributions. However, if they are outside of these parameters, then they are treated as concessional contributions. See our article on "Allocations from a reserve" for more info on this.

 

Non Concessional Contributions

Non concessional contributions are generally those where no one has claimed a tax deduction for the contribution. This includes the following sub-sets of contribution types:

 

Personal contributions

These are the voluntary personal contributions you make to your SMSF, where you have not claimed (or not eligible to claim) a tax deduction. This is generally people who are not self employed. This includes in-specie asset contributions (see below for more on in-specie contributions*)

 

Eligible spouse contributions

 

Eligible spouse contributions are those that your SMSF receives into your member account that have been made by your spouse. You need to be under the age of 65 to receive them into your SMSF member account. If you are aged between 65 and 70, eligible spouse contributions may be accepted only if you meet the work test (40 hours in any continuous 30 day period). If you are 70 or over, the SMSF cannot accept eligible spouse contributions. There is no age limit or employment test for the person making the contributions.

 

 

In specie contributions

In-specie contributions will be classed as either concessional or non-concessional contributions, depending on your situation and the deductibility of the contribution. An in-specie contribution is a contribution to a SMSF in the form of an asset other than money. For example, instead of contributing money into your SMSF, you may decide to contribute a parcel of shares that you own instead. Basically, the SMSF is buying your shares off you, instead of you selling them down and then contributing the cash. Trustees are generally prohibited from intentionally acquiring assets (including in specie contributions) from related parties of the fund (which includes you if you’re a member of your own SMSF). Exceptions to this rule include:

 

- All securities (such as shares, warrants etc) listed on an approved exchange (e.g. ASX, NYSE) at market value
- Business real property, which must be acquired at arm’s length and at market value
- Units in widely held unit trusts (like managed funds) at market value
- Term and other deposits with an approved deposit institution such as a bank
- Assets classed as "in-house assets" which would not result in the level of in-house assets exceeding 5% of the fund’s asset value

 

Note however that an in-specie contribution changes the legal ownership of the asset from the individual contributing to the SMSF. Therefore, you may have stamp duty payable by the Fund depending on the asset and capital gains tax may be payable by the contributor (as this is a disposal of the asset for CGT purposes).

 

Government Co-Contributions

The Government's superannuation co-contribution is an initiative to help low to medium income earners save for their retirement. If you are eligible to make personal super contributions to your SMSF, the Government will match your personal super contribution with a co-contribution up to certain limits. You will be eligible for the co-contribution if:

 

- you make a personal super contribution by 30 June each year
• - your total annual income (plus reportable employer superannuation contributions) is less than $48,516 in 2013/14
• - 10% or more of your total income is from eligible employment, running a business or a combination of both
• - you are less than 71 years old at the end of the year of income
• - you do not hold an eligible temporary resident visa at any time during the year
• - you lodge your income tax return.
• 
  For the 2013/14 financial years, you can get the maximum co-contribution amount of $500 if you are earning $33,516 or less for the year, and make at least $1,000 of non concessional contributions.
  
  CLICK HERE for an ATO calculator that works out the co-contribution for you.

 

If you are eligible all you need to do is make a personal contribution before 30 June and lodge your personal income tax return. The ATO will use the information on your personal income tax return and the information provided by your SMSF tax return to calculate the co-contribution amount. They will then deposit the co-contribution into your SMSF’s bank account or send you a cheque.

Contributions from the disposal of small business assets

If you dispose of certain small business assets and then use the proceeds to make a contribution to your SMSF, then these contributions may be eligible to be excluded from your non-concessional contributions cap. There is of course a limit to this, and it is known as your lifetime super CGT cap.

 

One of the exemption categories includes the small business retirement exemption, which is a concession that provides a capital gains tax exemption on the sale of a business (or business assets) for individuals (and other entities) where the CGT amount owing to be paid on the sale (after being reduced by the other CGT exemptions available) is reduced or eliminated if you roll this amount over into your SMSF. There is a lifetime maximum limit of $500,000 per individual on this exemption. This amount does not form part of the 'non-concessional' contribution limit for that year, however you do have to ensure due process if followed and you claim the exemption. For more detail on all of the exemptions, see our article on "Contributions from the disposal of small business assets".

**Special Note: with all of the above contributions, you must ensure that your trust deed allows that type of contribution. As some of these contributions are fairly new due to government initiatives, some old trust deeds may not provide you with the ability to do so. Don't just assume. Make sure you check your deed. Its a good habit to get into.

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