Doubling Concessional Contributions

18 June 2014

Double concession contributions can be made for the financial year ending 30 June 2014.  Instead of $25,000 or $35,000 (if you are age 59 or more on 30 June 2013) it is possible to make $50,000 or $70,000 in concessional contributions.  To do this requires the use of an unallocated contribution account and there must be paper work supporting the strategy – as the ATO will be checking.

If you have used this technique in respect of the 2013 financial year – you will most likely have already exhausted your concessional caps for the 2014 financial year and so will not be able to do it again until the new financial year.

Example

Bill has a concessional contribution cap of $25,000.  So far for the 2014 financial year, concessional contributions of $20,000 have been made for him.  He wishes to maximise his superannuation deductions for the current year as he expects he will have insufficient taxable income the following financial year.  

As Bill is a young bloke, his concessional contribution caps for the 2014 and 2015 financial years are, respectively, $25,000 and $30,000 and he intends to maximise his concessional contributions.

The steps Bill and his SMSF trustee need to take are as follows:

  • First, the trustee needs to establish an Unallocated Contribution Account (UCA).
  • Second, Bill needs to contribute $35,000 to his SMSF in June 2014.
  • The trustee needs to immediately credit the entire $35,000 to the UCA.
  • Before 30 June 2014 the trustee must transfer $5,000 from the UCA to Bill’s own member account.
  • Before 28 July 2014 the trustee must transfer the balance – being $30,000 – from the UCA to Bill’s own member account.

Unless these steps are taken and completed in the above order and by the specified date, the strategy will not be effective.

The entire $35,000 needs to be initially credited to the Unallocated Contributions Account.  The ATO has taken the view that it is not possible to split a contribution between the portion to be credited to the UCA and the portion to be credited to the member account.  

The crediting of the entire $35,000 contribution to the UCA must be supported by a trustee resolution.
$5,000 needs to be transferred from the UCA to Bill’s account before 30 June 2014.  This transfer needs to be supported by the trustee resolution.  This transfer must be made before 30 June 2014 to ensure that the $5,000 is counted for contribution purposes in respect of the 2014 financial year.

The balance in the UCA – which is $30,000 – needs to be transferred from the UCA to Bill’s member account before 28 July 2014.  This second transfer also needs to be supported by a trustee resolution.  The 28 July is a critical date as the SIS Regulations require contributions to be allocated to the relevant member no later than 28 days after the end of the month in which the contribution was received.  If the 28 July deadline is not met, there will be a breach of an operating standard (which since 1 July 2014 may be subject to a trustee penalty) and the ATO may treat the entire $30,000 as being counted for contribution cap purposes as being made in the 2014 financial year.

If the correct steps are taken and completed in the above order and within the specified dates then the outcome will be:

  • $55,000 concessional contributions will have been made for Bill in the 2014 financial year (and a deduction permitted in that year);
  • the trustee will be taken for taxation purposes as having received $55,000 of concessional contributions for Bill in the 2014 financial year;
  • Bill will be treated as having received $25,000 of concessional contributions in 2014 as $5,000 was credited to his member account before 30 June 2014 and the previous credited $20,000 were credited during the 2014 financial year; and
  • Bill will be treated as having received $30,000 of concessional contribution in the 2015 financial year.

Consequently, Bill will not have exceeded his concessional contributions cap in either the 2014 or 2015 financial years.  

ATO treatment

As the SMSF has received $55,000 of concessional contributions for Bill in respect of the 2014 financial year, they must be reported by the trustee in the fund’s 2014 annual return.

The annual return does not permit the concessional contributions to be reported as those which relate to the current year and those which relate to the next year.  Consequently, the ATO computer will identify Bill as having received excess concessional contributions for the 2014 financial year and Bill will have to convince the ATO that a UCA was involved.  

This is where the paper work is required.  The trustee’s resolution in establishing the UCA, and the resolutions in transferring concessional contributions to the UCA and transferring them from the UCA is required to show the process was undertaken in the correct order and within the correct time frames.

Unfortunately, the trustee may have to muster and provide copies of the relevant documents to the ATO to demonstrate what happened with the contributions.

Downstream Implications for Bill

Bill has successfully doubled his concessional contributions for the 2014 financial year.  He has also suffered a downstream consequence in that Bill will have exhausted all of his “concessional contribution cap” for the 2015 financial year.

At best, in June 2015 Bill will be able to make $30,000 concessional contributions to his SMSF but only if they are immediately credited to the UCA and then only credited to this member account between 1 July 2015 and before 28 July 2015.

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