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When a superannuation contribution is made?

Section: 2.2

In Australia, the income tax law provides concessions to superannuation funds that comply with the regulatory provisions in the SIS Act. The concession itself can be a tax deduction, a government co-contribution, a low income superannuation tax offset or a tax offset for spouse contributions.

Contributions are classified as either:

  • Concessional, or
  • Non-concessional

Concessional contributions

Generally, a concessional contribution is a contribution made by (or on behalf of) someone that is included in the assessable income of the fund. Accordingly, it is subject to tax at up to 15%. The term 'concessional' reflects the tax deduction generally claimed by an employer or individual in respect of the contribution.

Non-concessional contributions

Whereas, a non-concessional contribution is a contribution made by (or for) someone that is not included in the assessable income of the fund and consequently no tax is paid upon receipt by the fund. The term 'non-concessional' reflects that no tax deduction is generally available in respect of the contribution. A non-concessional contribution is made using after-tax money.

However, the introduction of annual contributions caps means that it is even more critical to identify precisely when a contribution is made.

The timing

The timing at which a contribution is made will determine the period for which the person making the contribution may be eligible to claim a deduction. Subsections 290-60(3) and 290-150(3) prescribe that a contribution made in an income year is deductible in that year. In determining when the contribution is made can be crucial for the employee on whether they need to pay excess contribution taxes 1. The contribution that is included in the assessable income of a superannuation fund is normally included in the income year in which it is received 2.

A contribution of funds as cash or an electronic funds transfer is made when the amount is received by the superannuation provider or credited to the relevant account.

No If the funds are transferred by... A contribution is made when...
1 Making a cash payment (either in Australian or foreign currency) to the superannuation provider The cash is received by the superannuation provider
2 An electronic transfer of funds to the superannuation provider The funds are credited to the superannuation provider's account
3 Giving the superannuation provider a money order or bank cheque on which payment is made The money order or bank cheque is received by the superannuation provider, unless the order or cheque is dishonoured.
4 Giving the superannuation provider a personal cheque (other than one that is posted-dated) that is presented and honoured with cash or its electronic equivalent The personal cheque is received by the superannuation provider, so long as the cheque is promptly presented and is honoured.
5 Giving the superannuation provider a personal cheque that is post-dated and that is presented and honoured with cash or its electronic equivalent The cheque is able to be presented for the payment (that is, the date on the cheque), so long as the cheque is promptly presented and is honoured
6 A related party (as maker) issuing a promissory note, payable on demand at face value, to the superannuation provider and the note is paid with cash or its electronic equivalent The promissory note is received, so long as payment is demanded promptly and the note is honoured
7 A related party (as maker) issuing a promissory note, payable on a future date at face value, to the superannuation provider and the note is paid with cash or its electronic equivalent Payment is able to be demanded or required to be made, so long as the demand (if required) is promptly made and the note is honoured.

Source:

 1 see subsection 292-25(2) and 292-90(2)

2 Sections 295-160 and 295-190. However, note that a member's personal contribution that is deducted may be included in a later income year in some circumstances - see subsection 295-102(2) and (3)

This technical resource is intended for the use of financial advisers only. It is current as at the date of publication but may be subject to change. This publication has been prepared without taking into account a potential investor's objectives, financial situation, needs or objectives. Before making a recommendation based on this material, you should consider its appropriateness based on the client's objectives, financial situation and needs. Rainmaker Group is not a registered tax agent under the Tax Agent Services Act 2009. Your client should refer to a registered tax agent before relying on information published herein that may impact their tax obligations, liabilities or entitlements.

Last modified: Tuesday, November 3, 2020