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Self Managed Super Fund (SMSF) Article
The New Super Contribution & Preservation Rules
By Tony Negline.
This article may be out of date.
22nd August 2007
Being able to make contributions into the super system or get money out of it is very important knowledge.
Currently there are five basic rules that allow superannuation contributions:
- Under age 65 – contributions can be made at anytime. They can be made by the member, their employer or by anyone else for a member’s specific benefit
- Aged at least age 65 but under 70 – Industrial award contributions can be made at any time. All other contributions cannot be made until a super fund member has been gainfully employed for at least 40 hours in less than 31 days. What is gainful employment? In relation to super contributions it has had a number of different meanings since 1994. From July 2007 it means employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.
This is a really difficult definition to grapple with at the best of times. It is common for people to ask if working for a charity for little or no reward is okay. Some want to know if looking after the grandchildren for cash wages is acceptable. We have never had guidance from the government regulators as to what is or is not acceptable.
- Aged at least 70 but under 75 – Industrial award contributions can be made at any time. All other contributions cannot be made until a super fund member has been gainfully employed for at least 40 hours in less than 31 days. Additionally contributions must be received on or before the day that is 28 days after the end of the month in which the member turns 75
- Aged at least 65 but under 75 – member contributions must be less than $150,000 per annum
- The fund doesn’t have a member’s Tax File Number – Personal contributions must be refunded unless the TFN is provided within 30 days of the contribution being made
These aren’t the only rules involving super contributions – there are also rules about when the Government’s Co-contribution can be made.
There are also a set of rules for splitting super contributions. One new rule which applies after 5 April 2007 says that only contributions claimed as a tax deduction can be split between spouses. Under the old rules it was possible to split personal undeducted contributions.
Finally it is important to remember that if you wish to claim a tax deductionyou’re your personal contributions to super, you need to send the fund some paper-work (called a Sec 290-170 Notice) and the fund must send you another notice acknowledging this first information. The paper-work the fund sends you must be kept in your tax records. You aren’t allowed to claim the deduction until you have the information from the fund.
Once the contributions have been made the trick is to get the money out (assuming that you want to get it out).
There are nine different way to get money out of the super system. Collectively these are called Conditions of Release:
- Retirement: there are two limbs to this requirement. Firstly, if you are aged between 55 and stopped gainful employment before age 60 then a super fund trustee must be “reasonably satisfied” the member intends to never again be gainfully employed (as defined above) for more than 10 hours per week. Secondly, the member is aged at least 60 and a gainful employment arrangement has come to an end and either the person ceased gainful employment before age 60 or trustee is “reasonably satisfied” the member intends to never again to be gainfully employed” for more than 10 hours per week
- Death of a member
- A member’s permanent incapacity: that is, a member suffers from mental and/or physical ill health and a trustee is reasonably satisfied the member will never again engage in gainful employment for which the member is reasonably qualified by education, training or experience
- Permanent departure from Australia - Members account balance is less than $5,000, has held an eligible temporary resident visa (that has expired or was cancelled) and has departed Australia. The amount must be cashed as a single lump sum
- Financial Hardship – this is assessed by the fund’s trustee; the applicant needs to show that they can’t provide immediate family living expenses as well as proof that they are receiving government welfare payments
- Compassionate Grounds – the is assessed by the Australian Prudential Regulation Authority. It is designed to cover a range of costs such as medical expenses and home mortgage repayments which are in danger of forclosure
- Age 65 – all benefits can be taken but can be left in the fund indefinitely
- Temporary incapacity: that is, the member cannot work because of a temporary illness or injury. When this occurs a pension can be paid that can’t be converted into a lump sum. The pension can be paid until the member’s normal retirement date
- Transition to Retirement – a member is over age 55 but does not satisfy the retirement rules above. When this occurs then a pension can be taken. The maximum income from this pension over a financial year is 10% of the account balance which cannot be converted into a lump sum
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