Self managed superannuation funds—acceptance of contributions

It is important that trustees of self managed superannuation funds (SMSFs) are fully aware of the minimum standards relating to the acceptance of contributions prescribed under the Superannuation Industry (Supervision) Act 1993 (SISA). These standards are designed to ensure that contributions are for retirement purposes only. Trustees should also be aware that these are minimum standards only and that the governing rules of a particular fund may prescribe more restrictive acceptance rules.

Definitions

Before discussing whether a fund can accept contributions for a member, there are a number of terms that need to be explained.

Mandated employer contributions

These are contributions made by an employer for the benefit of the fund member that are:

Where members have an effective arrangement in place with their employer to salary sacrifice to superannuation, all superannuation contributions are considered to be made by the employer. However, only those contributions to the superannuation guarantee level (9% from 1 July 2002) or the industrial award or agreement level (if higher than the superannuation guarantee level) will be classed as ‘mandated employer contributions’.

Gainfully employed

This means employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment. Gain or reward is the receipt of remuneration such as wages, business income, bonuses and commissions, in return for personal exertion from these activities. It does not include the passive receipt of income (for example, receipt of rent or dividends).

Part-time employment

This is gainful employment for at least 10 hours and less than 30 hours each week.

Full-time employment

This is gainful employment for 30 hours or more each week.

Eligible spouse contributions

These are contributions made by a person for the benefit of their spouse.

Acceptance of contributions

Mandated employer contributions

The SISA allows funds to accept mandated employer contributions at any time. This means a trustee may accept mandated employer contributions for a person regardless of the age of the person or the number of hours they work.

Other contributions

Contributions which are not mandated employer contributions (such as the member’s own contributions) can only be accepted in the following circumstances:

For members under 65 years of age:

  1. If the member:
  1. The contributions are eligible spouse contributions; or
  2. The contributions are made in respect of a child under the age of 18 by anyone other than the employer of the child or the child themself. Contributions of this nature are limited to $3,000 per child during any three year period.
  3. The contributions are made in respect of a person who is entitled to a first child offset under subdivision 61-I of the Income Tax Assessment Act 1997 (otherwise known as the 'Baby Bonus') within 12 months of the person being advised by the Commissioner of Taxation of their entitlement to the 'Baby Bonus'.

For members aged 65 but less than 70

A trustee may only accept contributions other than mandated employer contributions if the member is gainfully employed on at least a part-time basis. This means that for ‘eligible spouse contributions’ to be accepted by the fund, the spouse must be working part-time.

For members aged 70 but less than 75

From 1 July 2002, a trustee may only accept contributions other than mandated employer contributions if the contributions are personal contributions made by the member and the member is gainfully employed on at least a part-time basis. A trustee is unable to accept other non-mandated contributions, such as spouse contributions or salary sacrifice contributions, in respect of a member who is aged 70 or over.

Residency of the fund

To remain a complying superannuation fund and be eligible for tax concessions, a fund must remain a resident regulated superannuation fund for the entire year. A problem potentially arises where trustees of an SMSF are seconded to work temporarily overseas. However, as a result of amendments made to the definition of resident superannuation funds, temporary absences of trustees from Australia for a period which does not exceed 2 years will not be taken into account in determining the residency status of the fund.

However, it should be noted that where trustees permanently depart Australia or are absent for a period exceeding two years, the fund may no longer meet the definition of resident superannuation fund. If a fund is faced with losing its residency, it should consider appointing an approved trustee or making alternative arrangements before the trustee departs Australia, so as to continue to receive tax concessions.

It is important to note that irrespective of how long the trustees are absent from Australia, if a member of the fund becomes a non-resident of Australia in a year, in order to protect the fund’s eligibility for tax concessions, the trustees should not accept contributions on behalf of that member.

In specie contributions

Trustees of regulated superannuation funds are prohibited from intentionally acquiring assets from related parties of the fund. Contributions to the fund in the form of an asset other than money (known as an in specie contribution) are effectively prohibited from being made to the fund by related parties of the SMSF except in limited circumstances.

Refer to the information titled, Self managed superannuation funds—Investment strategy and investments restrictions, for the limited exceptions to this rule.

Superannuation for life: Child accounts

From 1 July 2002, parents, grandparents and friends will be able to contribute to superannuation on behalf of children. Contributions of up to $3,000 per child may be made on behalf of a child under the age of 18 during any three (3) year period. Contributions made by an employer of the child or the child themself are subject to the normal rules relating to members under the age of 65. Before accepting contributions in respect of a child however, trustees should ensure that the trust deed allows contributions to be made by or in respect of a child under 18.

Baby Bonus contributions

From 1 July 2002, the trustee may accept contributions made in respect of the recipient of the baby bonus in the 12 month period after the person receives notification by the Commissioner of Taxation that the person is entitled to the baby bonus. The amount of contributions able to be made in respect of the recipient of the baby bonus is not limited – it may be more or less than the actual baby bonus the person receives.

Eligible spouse contributions

Eligible spouse contributions may be accepted by the fund at any time if the spouse is under the age of 65. If the spouse is aged 65 but under 70, eligible spouse contributions may only be accepted if the spouse is at least gainfully employed on a part time basis. If the spouse is 70 or over, the fund cannot accept eligible spouse contributions. There are no age limits or employment tests for the person making the contributions.

Contributions from unemployed people

Trustees may accept ‘non mandated contributions’ in respect of a person if the person is under 65 years of age and has been gainfully employed for at least 10 hours of a week at any time in the previous two years. It does not matter whether the person is already a member of the fund or is seeking to join as a new member.

Penalties

A trustee must ensure that the contribution standards are complied with at all times. A trustee who intentionally or recklessly fails to do so is guilty of an offence under the SISA and the failure to comply may result in a fine of up to $11,000 or the fund being made non-complying and losing the taxation concessions available to complying superannuation funds.

 

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