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Self Managed Super Fund (SMSF) Article
Super Contribution Rules
By Tony Negline.
This article may be out of date.
9th February 2005
Recent feed-back from readers has revealed that there is a lot of confusion about when a super fund trustee can accept contributions.
We're not surprised by this confusion because in the last twelve months there have been quite a few changes to the super contribution rules and it takes time for people to get used to a new set of rules.
Unfortunately our political leaders feel compelled to change the super regulatory environment far too frequently. In reality no one has enough time to get used to one rule before it is either amended or removed. In the last ten years there have been 24 changes to the rules that permit super contributions.
Before deciding to invest money into super, it is necessary to look at the whole transaction including tax concessions that may be available for the contributor, the tax treatment of a contribution once a super fund has received it, how long the money must stay in the super system before it can be accessed, the tax treatment that might apply upon the withdrawal of the contribution and any earnings attached to the contribution and finally the Centrelink assessment of those benefits.
In this article we will concentrate on the rules that permit contributions to be made. In later articles we will focus on the potential tax concessions available for those contributions.
Before 1st July 2004 there were at least six different ways that a person aged under 65 could contribute, or could have contributions made for them, to super.
From July 2004 onwards the government removed all these rules and now anyone aged under 65 can make a contribution to super. This is a very welcome simplification measure. There are some important points to note :
- Super contributions can be made by anyone for another person of any dollar value. This includes for children. (Under previous rules contributions for children under 18 who were not working were possible after June 2002 and before July 2004 but the dollar value was severely restricted.)
- Work tests for those aged under 65 who want to make super contributions for themselves have been removed. Under the old rules a person under 65 had to stop making contributions for themselves if they had ceased ‘gainful employment’ more than two years before the contribution was to be made. See later for a discussion on ‘gainful employment’
- Heterosexual spouses can contribute to super for each other if the spouse receiving the contribution is aged under 65 when the contribution is made. A tax rebate may be available for this contribution. If the spouse is aged 65 or over and under 70 then the spouse receiving the contribution has to satisfy certain work tests which we will look at in a moment
- People permanently disabled can now make a contribution at anytime before reaching age 65. The old rules only allowed people permanently disabled to make super contributions if the person had stopped gainful employment because of their permanent incapacity. This restrictive rule unfairly penalised people who were disabled whilst not working.
Contributions for people aged 65 are another matter. The rules for these contributions have been significantly amended and from July 2004 onwards there are three age brackets to consider:
- Aged 75 or over – voluntary super contributions are not permitted. Super Guarantee contributions are not allowed. Only employer contributions which have to be made to satisfy an Industrial Award or Agreement can be made for people aged 75 or more. For some odd reason, the government’s preferred industrial instrument, Australian Workplace Agreements, are not included in the definition of Industrial Award or Agreement. Some clever small business owners get around this restriction by negotiating a formal Industrial Agreement with themselves that allows large contributions for employees aged at least 75. Good industrial relations legal work is needed before implementing this strategy
- Aged 70 or over but under 75 – voluntary contributions can only be made by the member as long as the member can demonstrate that they have “worked” at least 40 hours during less than 31 consecutive days during the financial year in which the contribution is made. No one knows what the word “worked” means. Does it mean voluntary work, such as delivering meals-on-wheels, for which no remuneration is received? Painting my home and mowing my lawn are both hard work. Does this mean that if I were a 73 year old, I could make super contributions? Unfortunately no one knows the right answer. It is often better not to be too greedy or too clever when it comes to this type of uncertainty.
Super Guarantee contributions are not allowed. Industrial Award or Agreement contributions can be made at any time.
- Aged 65 or over but under 70 – all voluntary contributions are allowed including spouse and employer contributions, as long as the same work test that applies to those aged 70 or over but 75 is satisfied. Super Guarantee contributions must be made if an employee is eligible for them.
This email is general in nature only and does not constitute or convey specific or professional advice. Legislation changes may occur quickly. Formal advice should be sought before acting in any of the areas discussed. Be aware that the information in these articles may become innaccurate with time. Responsibility is disclaimed for any inaccuracies, errors or omissions. Particular investments are neither invited nor recommended and hence this publication is not "financial product advice" as defined in Section 766B of the above legislation. All expressions of opinion by contributors are published on the basis that they are not to be regarded as expressing the official opinion of any other person or entity unless expressly stated. No responsibility for the accuracy of the opinions or information contained in the contributor's articles is accepted by any other person or entity. Copyright: This publication is copyright. If you wish to reproduce this article you require a license, which can be purchased here, to do so.