Presentation slides from webinar presented by Aaron Dunn of The SMSF Academy on 5 September 2013 on the latest issues impacting contributions including excess concessional contribution reforms, additional contributions tax for high income earners and more.

1. © The SMSF Academy 2013
Webinar:
DEALING WITH SMSF
CONTRIBUTIONS
Aaron Dunn
The SMSF Academy
5 September 2013

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HOUSEKEEPING

3. GENERAL ADVICE WARNING
This presentation provides general advice only. No direct or implicit recommendations are
given in this presentation. This means that the general advice provided has not been
prepared taking into account any individual’s financial circumstances (i.e. investment
objectives, financial situation and particular investment needs).
The SMSF Academy Pty Ltd believes that the information in this presentation is correct at the
time of compilation but does not warrant the accuracy of that information. Save for statutory
liability which cannot be excluded, The SMSF Academy disclaims all responsibility for any loss
or damage which any person may suffer from reliance on this information or any opinion,
conclusion or recommendation in this presentation whether the loss or damage is caused by
any fault or negligence on the part of presenter or otherwise.
© The SMSF Academy, 2013

4. • What is defined as a contribution?
• Acceptance of contributions (SISR 7.04)
– Fund capped amounts
– Eligibility by age
• Assessability of contributions
– Complying Fund Tax Rate
– Additional contributions tax for high income earners
– Low Income Super Contribution
– Excess Contributions Tax (including refund mechanisms)
• Tax deductibility & timing in allocation of contributions
• Contributions and the ‘caps’
– Working within age-based limits
– Bring forward rule
– Small Business CGT concessions
DEALING WITH CONTRIBUTIONS

5. CONCESSIONAL CONTRIBUTION CAP
INCREASE
• Temporary concessional contribution increase to $35,000 from 1
July 2013 for those 59 and over at 30 June 2013
– Those less than 59 remain at $25,000
• From 1 July 2014, the temporary cap increases to $35,000 for
those 49 and over at 30 June 2014 onwards
• ‘Temporary’ – not indexed and available until existing
concessional contribution cap indexes to higher amount
• Replaces previously proposed extended cap from 1 July 2014 for
those:
– 50 and over; and
– Account Balance of less than $500,000

6. • Backdated start date to 1 July 2012
• For a member to be subject to the additional contributions tax
('surcharge'), they must have Taxable Contributions (TC).
• This is defined as amounts than exceed the $300,000 threshold when
applying the following:
Income for Surcharge Purposes (ISP) - Reportable Super Contributions (RSC)
+ Low Tax Contributions (LTC)
‘Income for Surcharge Purposes’ is a similar definition to that which already applies for the Medicare Levy surcharge.
ADDITIONAL CONTRIBUTIONS TAX FOR HIGH INCOME
EARNERS
$300,000$37,000
LISC – 0% Contributions tax at 15% Higher rate – 30%
Excess concessional contributions tax – 31.5% (until 1 July 2013)

7. LOW TAX CONTRIBUTIONS ABOVE THRESHOLD
YES
If an individual has TC for an
income year
If an individual in an income
year exceeds the $300,000
threshold
ISP – RSC + LTC > $300,000
Is an individual liable for Division 293 tax?
Does an individual have TC?
What are an individual’s LTC for a
financial year?
TC = lessor of
(1) LTC for the income year
(2) LTC in excess of $300,000
There is no TC if LTC are nil
What is the amount of TC?
15% of TC
What is assessed Division 293 tax?
YES
Eligible for a refund of
Division 293 tax paid
and/or release from
liability for Division
293 tax
Has an individual received a DASP?
Special rules modify LTC for:
• Defined benefit interests;
and
• Certain individuals
TC = taxable contributions
ISP = Income for Surcharge Purposes
RSC = Reportable Super Contributions
LTC = Low Tax Contributions
LTCA = Low Tax Contributed Amounts
ECC = Excess Concessional Contributions
DASP = Departing Australia Super Payments
LTC = LTCA – ECC
Effectively:
Concessional taxed
contributions to super interests
less excess concessional
contributions
LEGEND

8. • David’s income (income for
surcharge purposes other than
reportable super contributions is
$315,000
• His low tax contributions are $25,000
• Combined income and low tax
contributions are $340,000
• The amount of low tax contributions
($25,000) < combined income and
low tax contributions ($340,000) less
the $300,000 threshold (i.e. excess of
$40,000)
ADDITIONAL CONTRIBUTIONS TAX FOR HIGH INCOME
EARNERS
TC ($25,000)
$340,000
ISP + RSC +
LTC
$40,000 in-excess
of $300,000
threshold
$25,000
in LTC
$300,000
threshold
Determining the amount of taxable contribution

9. • Sabina’s income (income for
surcharge purposes other than
reportable super contributions is
$285,000
• Her low tax contributions are $25,000
• Combined income and low tax
contributions are $310,000
• The amount of low tax contributions
($25,000) > combined income and
low tax contributions ($310,000) less
the $300,000 threshold (i.e. excess
equals $10,000)
• Sabina’s taxable contributions are
$10,000
DETERMINING THE AMOUNT OF TAXABLE
CONTRIBUTION
$310,000
ISP + RSC +
LTC
$10,000 in-excess
of $300,000
threshold
$25,000
in LTC
$300,000
threshold
TC only – excess LTC
$10,000
$15,000

10. • Mark’s income (income for surcharge
purposes other than reportable super
contributions is $285,000
• Mark made concessional contributions
for 2012-13 of $40,000, meaning excess
contributions of $15,000 (cap of
$25,000)
• His low tax contributions are $25,000
• The $15,000 of excess concessional
contributions are not included within
the $300,000 threshold to determine
whether Mark has taxable contributions
• These amounts are subject to ECT, not
higher rate
EXCESS CONTRIBUTIONS
$310,000
ISP + RSC +
LTC
$10,000 in-excess of
$300,000 threshold
$25,000
in LTC
$300,000
threshold
ECC - $15,000
TC only – excess LTC
$10,000
$15,000
$15,000 subject
to ECT

11. ASSESSMENT AND PAYMENT
21 days
Individual lodges
income tax return
SMSF Annual
Return lodged
Commissioner issues
notice of assessment
& release authority to
individual
* ATO to issued notice of
assessment ‘as soon as
practicable’
Due and payable
within 21 days of
notice being
issued
GIC >21 days
Individual does not have to use
release authority and can choose
to pay from other sources
• Individual may give release authority to
provider within 120 days of issue
• Provider must comply within 30 days of
receiving the release authority

12. REMOVAL OF EXCESS CONCESSIONAL
CONTRIBUTIONS TAX
• Excess concessional contributions tax legislation has been
repealed from 1 July 2013
• Excess concessional contributions now to be included in an
individual’s assessable income and subject to a charge to
account for the deferral of tax
• Ability to elect to release ECC from super interest
– Released amounts proportionately reduce individual’s NCC
– Provides broadly equivalent position to individuals

13. INCLUDING EXCESS CONCESSIONAL CONTRIBUTIONS
AIN ASSESSABLE INCOME
• Individuals only pay tax on
their excess concessional
contributions at their
marginal tax rate
– Rather than at additional
31.5% tax rate (total 46.5%)
• Individuals entitled to a 15%
tax offset of their excess
concessional contributions
– Offset is not able to be
refunded, carried forward or
transferred
EXAMPLE
Terry (54) made total concessional
contributions for 2013-14 of $50,000,
exceeding his CC cap by $25,000.
The $25,000 excess concessional
contributions are included within
Terry’s assessable income for 2013-14.
Terry is entitled to a tax offset of
$3,750 (15% of excess concessional
contributions).

14. EXCESS CONCESSIONAL CONTRIBUTION CHARGE
• Individual with excess concessional contributions must pay a
‘charge’
• Charge is payable on the amount of an individual’s income
tax liability for the income year that is attributable to the
individual having excess contributions
• Need to take into account both the:
– Increase in the individual’s income tax liability due to the inclusion of
their excess concessional contributions; and
– Reduction in their tax liability due to the availability of the ECT offset

15. Excess concessional contribution charge
• In 2013-14, Mary’s taxable income
is $80,000 which includes $10,000 of
excess concessional contributions.
– Her marginal tax rate is 32.5% + 1.5%
Medicare levy.
• Results in $3,400 of additional tax.
• Mary is entitled to 15% tax offset on
excess concessional contributions
– decreases her tax liability by $1,500
• Amount of Mary’s tax liability that is
attributable to her excess
concessional contribution is:
$1,900 ($3,400 - $1,500 = $1,900)
EXAMPLE

16. EXCESS CONCESSIONAL CONTRIBUTION CHARGE
Begins to apply on
first day of the
income year to
which excess
concessional
contributions are
attributable
* or would be due if the individual has no liability for a year
Excess CC charge payable at same rate of SIC
Shortfall Interest Charge (SIC) is based on:
90-day bank accepted bill (RBA) plus a 3% uplift factor
Commissioner has no discretion to remit the excess CC charge
SIC on shortfall must include excess CC charge
Ceases to apply on
the day prior to the
date on which a
payment is due under
an individual’s first
notice of assessment
for the year *
Shortfall interest
being to apply from
day the liability
under the original
assessment was
payable
SIC ends on the day
when individual
pays the liability
under the amended
assessment

17. 1 July 2013 30 June 2014
CALCULATING THE EXCESS CC CHARGE
SIC – $42.12
1 Excess CC Charge = $1,900 x 5.59% x (686/365)days
2 Shortfall Interest Charge = $1,900 x 5.59% x (686/365)days
1/5/2015
Lodges
personal tax
return
15/05/2015
Tax liability
paid here
31/08/2015
Amended
assessment
issued here
21/09/2015
Payment due
within 21 days
Excess CC charge – $199.331
Matthew (62) lodges tax return on 1 May 2015 and
pays tax liability on 15 May 2015.
On 31 August 2015, Commissioner determines
Matthew has excess concessional contributions for
2013-14 and issues amended assessment.
On issuing amended assessment, Matthew is also
liable for the excess CC charge & SIC
Matthew can release payment from super fund
If not paid on time, GIC will apply
Concessional
contributions made
totalling $45,000
(CC cap $35,000)
$10,000 refunded and
included within
assessable income
Matthew pays
$2,141
($1,900 + $199 + $42)

18. ELECTING TO RELEASE EXCESS CONCESSIONAL
CONTRIBUTIONS
Individual is entitled to release up to 85% of the amount of their excess concessional
contribution for that financial year from their super fund (entirely at discretion of individual)
0% 85%
Election to release
must be made
within 21 days of
receiving ECC
notice
Must be in the
approved form and
specify the amount
and from which
super interest to be
release
Once made, the
election cannot be
revoked. Cannot
seek to vary the
amount of super
interest nominated
Upon receipt of valid
election to release,
the Commissioner to
provide a release
authority for the
specified amount
Super Fund must pay amount to Commissioner within 7 days of receiving the release authority

19. IMPACT ON NON-CONCESSIONAL CONTRIBUTIONS
• Individual’s non-concessional contributions will continue to include
their excess concessional contributions
• However, if election made to release an amount of excess
concessional contributions, the amount reduce the individual’s NCCs
Calculated as:
100/85
of the amount released
Where individual chooses to release
the full 85% of their excess concessional
contributions, there will be no impact of
NCCs.
Ensure individuals always have an
option to avoid excess NCCs, and can
prevent auto-trigger of bring forward
rule for those under 65 years of age.

20. • In 2014-15, Brian (66) has excess
concessional contributions of
$10,000
• As a result of these excess CCs,
Brian now has $155,000 of NCCs
and is in breach of his NCC cap
• Brian elects to release $4,300
• This reduces his NCCs by $5,059
100 x $4,300 / 85 = $5,058.82
(to the nearest cent)
• As a result, Brian’s non-
concessional contributions are
$149,941.18. He no longer has
excess NCCs
BRIAN’S EXCESS CONCESSIONAL
CONTRIBUTIONS

21. IS IT WORTH BREACHING THE
CONCESSIONAL CONTRIBUTION CAP?
… MAYBE
TRIS 60 &
OVER
AND LOW
INCOME
EARNERS
CONTRIBUTION
HOLDING
ACCOUNT
STRATEGY?
In a low interest rate
environment, can
the fund outperform
the ECC charge &
interest over the
deferred period?

22. WHAT IS A ‘CONTRIBUTION’?
TR 2010/1
Transferring existing assets into the fund
Creating rights in the fund
Increasing the value of an existing asset in
the fund
Paying an amount to a third party on
behalf of the fund
Forgiving a debt owed by the fund
Shifting value to an asset owned by the
fund
RESERVE ALLOCATIONS
Remember prior year
contribution reserve amounts to
avoid ECT
Disproportionate allocations
Amounts allocated that are
more than 5% of value of fund
assets at time of allocation
Concessional contributions must
be grossed-up by 1.176

23. ALLOCATION OF CONTRIBUTIONS
INCOME TAX
• Subsection 292-25(2) of ITAA 1997
• A concessional contribution is
made in ‘respect of you’ and
included within assessable income
of the super fund
• Paragraph 7 of TR 2010/1 requires
an objective determination of the
contributor’s purpose, therefore by
not immediately allocating does
not fail this requirement
SUPERANNUATION LAW
• Division 7.2 of the SIS Regs. 1994
• SISR 7.08(2) requires a trustee who
receives a contribution in a month
to allocate the contribution to a
member:
– Within 28 days after the end of the month;
or
– If not reasonably practicable to allocate
to the member of the fund within the
above period – within such longer period
as is reasonable in the circumstances
Contribution holding account strategy – ATOID 2012/16

24. 1 June 2013 30 June 2013 28 July 2013
$21,250 in
Contribution
Holding
Account$25k
allocated to
Jenny’s
account
Allocated to
member prior
to 28 July
MEET JENNY Self-employed doctor with no
concessional contributions made YTD
Net capital gain of $100,000 from sale of
investment property
Wants to reduce CGT bill as far as
possible
Contributes $50,000
(2 x payments)
Fund pays
income tax
on $5ok
contributions
Grossed-up
amount reported
as contribution in
following year

25. CONTRIBUTION HOLDING
ACCOUNT APPLIES EQUALLY TO
NON-CONCESSIONAL
CONTRIBUTIONS
Contributions
(cash or in-
specie) must not
be fund-capped
Cannot split a
contribution (SISR
7.08(2))
ATOID 2012/79
In-specie
contributions of
listed shares

26. • Off-market shares transfers to SMSFs are allowed to continue
from 1 July 2013
• Stronger Super measure did not proceed
• ATOID 2012/79 provides clarity around same day in-specie
contributions (e.g. listed shares)
• Does SISR 7.04(3) of SISR prevent trustees from accepting
multiple parcels of shares made on the same day if the
combined value exceeds a member's non-concessional cap
for a financial year (i.e. fund-capped)?
ATOID 2012/79

27. • Ken (65) for 2011-12 financial year
• Member of Ken & Barbie SMSF
• Ken has met the work test for the financial year
• Eligible to contribute to non-concessional contribution cap of
$150,000
• 8th February makes following in-specie contributions of listed shares
into SMSF:
• 2000 shares in ABC Ltd – total market value $42,000
• 5500 shares in DEF Ltd – total market value $78,000
• 3200 shares in XYZ Ltd – total market value $35,000
• For contribution cap purposes, do we aggregate the same day
contributions or is each parcel a separate contribution?
EXAMPLE

28. • Commissioner confirms in interpretative decision that each
parcel of shares is a contribution
• Amount is not fund-capped (should it have been aggregated)
• Considers views of:
• ATOID 2007/225: acceptance of fund cap contributions;
subregulation 7.04(3) of SISR applies on a ‘contribution-by-
contribution’ basis
• Each share is in a different company, therefore disparate legal
and/or beneficial rights exist and cannot be interchanged or
substituted
• For Ken:
• $5,000 is an excessive contribution and subject to ECT
EXAMPLE

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31. Aaron Dunn
The SMSF Academy
www.thesmsfacademy.com.au
SMSF Dunn Right,
http://thedunnthing.com
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