Simpler super - transitional cap of $1 million on non-concessional contributions

How does the $1 million cap apply?

There are transitional arrangements which apply to superannuation contributions made between 10 May 2006 and 30 June 2007. During the transition period, you can contribute up to $1 million of non-concessional contributions to your super fund. If you have more than one fund, all non-concessional contributions made to all your funds are added together and count towards the cap.

Non-concessional contributions include:

• personal contributions for which an income tax deduction is not claimed (this also includes such contributions that are made to a constitutionally protected fund)
• contributions a person’s spouse makes to their super fund account
• contributions in excess of your capital gains tax (CGT) cap amount
• amounts transferred from foreign super funds (excluding amounts included in the fund’s assessable income)
• for the transitional period from 10 May 2006 to 30 June 2007, any employer contributions in excess of your age based deduction limit, and
• contributions made for the benefit of a person under 18 years of age that are not made by or on behalf of the person’s employer.

Non-concessional contributions exclude:

• the Super Co-contribution
• certain contributions arising from structured settlements or orders for personal injuries
• certain contributions relating to some CGT small business concessions that are within your CGT cap amount
• contributions that are made to a constitutionally protected fund that are not included in the contributions segment of your super interest in the fund
• rollovers or transfers between complying super funds (not including amounts transferred from foreign super funds), and
• contributions made before 10 May 2006.

What if I exceed the transitional cap?

You will be taxed at 46.5% on non-concessional contributions in excess of the transitional $1 million cap. However, your fund may be able to release the excess contributions to you, so you do not have to pay the tax.

If you made contributions in excess of the $1 million transitional cap before 7 December 2006 you can lodge a Request for a transitional release authority with us.

If you made excess contributions after 6 December 2006 you cannot make a request, and you will be taxed on your excess contributions.

If we approve your request for a transitional release authority, we will issue a Transitional release authority, which you send to your super fund to allow it to return the amount of the excess contributions to you. For this transitional arrangement, the amount released is tax-free.

The Request for a transitional release authority must be lodged with us no later than 30 June 2007.

You can obtain a copy of the Request for a transitional release authority from our website at www.ato.gov.au/super or by phoning 13 10 20, 8.00am to 6.00pm, Monday to Friday.

For more details about the release of excess contributions go to Releasing your excess contributions fact sheet.

Example 1

Andre makes a personal contribution of $450,000 to his super fund on 30 May 2006. He makes another non-concessional contribution of $650,000 on 30 September 2006. He is not entitled to claim a tax deduction for the contributions.

Andre has exceeded the $1 million transitional cap by $100,000.

To have the excess $100,000 released from his fund, Andre needs to apply to us for a Transitional release authority by 30 June 2007. If he does not do this he will be liable to pay excess non-concessional contributions tax on $100,000 at the rate of 46.5%.

Example 2

Barbara makes a personal contribution of $600,000 to her super fund on 30 October 2006. She makes other non-concessional contributions of $500,000 on 30 November 2006, and $200,000 on 30 December 2006. She is not entitled to claim a tax deduction for the contributions.

Barbara has exceeded the $1 million transitional cap by $300,000.

Barbara applies to us for release of $100,000. She cannot apply for the release of the extra $200,000 as she contributed it after 7 December 2006. We send her a Transitional release authority for $100,000. She gives the transitional release authority to her fund.

Her fund returns the $100,000 to her. She pays no extra tax on this amount. However, she will still be liable for excess non-concessional contributions tax on $200,000. The Tax Office will issue an excess contributions tax assessment on her income tax notice of assessment. She will also receive a “Compulsory release authority“ that she must give to her super fund to release an amount equal to this excess contribution tax liability.

What are the special arrangements for people aged 65 and over?

People who became subject to the work test, or who become ineligible to contribute to super, between 10 May 2006 and 5 September 2006 can still take advantage of the $1 million cap on non-concessional contributions.

Under this transitional measure, a person who was aged 64 at any time between 10 May and 5 September 2006 will be able to make non-concessional super contributions up to 30 June 2007, without having to satisfy the work test.

A person aged 74 at any time between 10 May and 5 September 2006 will also be able to make super contributions up to 30 June 2007, provided they satisfied the work test for either the 2005-06 or 2006-07 financial years.

This transitional measure will not apply to individuals who were aged 65 to 73 between 10 May and 5 September 2006. They must still satisfy the work test to contribute to super.

What is the work test?

To make non-concessional contributions to super, people aged 65 to 74 must meet the work test in each year a contribution is made.

To satisfy the work test an individual must work for at least 40 hours during a consecutive 30 day period each financial year.

The work test does not apply to people under 65.

Once a person turns age 75 they are generally unable to make any super contributions. However their employer may be required to make employer contributions.

More information

To obtain a copy of our publications or for more information:

• visit our website at www.ato.gov.au/super
• phone 13 10 20, or
• write to us at:

Australian Taxation Office
PO Box 3100
PENRITH NSW 2740

If you do not speak English well and want to talk to a tax officer, phone the Translating and Interpreting Service on 13 14 50 for help with your call.

If you have a hearing or speech impairment and have access to appropriate TTY or modem equipment, phone 13 36 77. If you do not have access to TTY or modem equipment, phone the Speech to Speech Relay Service on 1300 555 727.