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Shalendra Pillay

Aug 16, 2021

Non Taxable Contributions

in SMSF Technical Forum

Members of SMSF both above 65 not working and on pension. They have decided to buy a property using the cash of SMSF. The net return on this property is less than the minimum pension and it seems they wont be able to meet the minimum pension from year 2 moving forward if cash is used up. They don't want to borrow either. This new property value is expected to go up significantly in next 3 to 5 years when they will decide to sell. Can they draw minimum minimum pension and put that back (say 50% to 60%) as Non Taxable contribution? Members also have other income apart from pension. Average pension per year combined is approximately $280,000.

Thanks

1 comment

Comments (1)

THE AUDITORS INSTITUTE

Aug 16, 2021

Hi Shalendra

They can make non-concessional (tax free) contributions (NCC's) only if they meet the rules and the cap limits.

To receive a contribution a member must meet the “work test” if aged 67 to 74. If a member is aged 75 or older can only receive mandated employer contributions (or downsizer contributions).

The Non-Concessional contribution (NCC) cap is $110,000 for the 2021/22 year. The 2020/21 NCC cap was $100,000 per year.

From 1 July 2021 member’s aged under 67 have an option to contribute up to $330,000 over a 3 year period (depending on their Total Superannuation Balance (TSB)).

The rule works as follows for 2021/22 onwards:

Total super balance NCC & bring forward $

< $1,480,000 $330,000 over 3 years

> $1,480,000 & < $1,590,000 $220,000 over 2 years

> $1,590,000 < $1,700,000 $110,000 over 1 years

> $1,700,000 $0 (nil)

You advise that the combined pension is $280,000 per year. This would suggest that the member's pension balances maybe greater than $1,700,000 per member. If a member's TSB is greater than $1,700,000 they are unable to make any NCC's.

I question whether you have taken the 50% pension discount into account.

If there is no ability to make contributions to help fund the payment of the minimum pension another option is to consider other members (for example their children) joining the Fund. Another option would be to consider having a lesser amount in pension mode if the cash flow cannot fund the required minimum pension amounts payable. They should get professional advice as to what action they should take.

Thanks

SMSF AAA