Compliance, Contributions, Pensions

Caps only barrier to pension

Non-concessional contribution Pension Total superannuation balance Contribution cap

A contribution being succeeded by a pension in short order is allowable with the only barrier to the former being the relevant caps that may apply.

SMSF members looking to make a contribution into their fund shortly before commencing a pension will only be restricted by contribution caps, with the two actions being completely separate and allowable, an SMSF technical specialist has stated.

Heffron client relationship manager Sean Johnston said it was possible to make a contribution close to the commencement date of a pension and gave the example of an SMSF member aged 67 who wants to make a $110,000 non-concessional contribution (NCC) in July 2024 and then start a pension in August 2024.

“Can they make this contribution in the first instance? The fund can accept a contribution at any point, but my first port of call here would be to check their contribution cap space,” Johnston said during an online presentation earlier this week.

“If we assume they have the cap space, we could also look and see if they are going to be under the $1.68 million total super balance cap for this financial year because the other thing they might be able to do if they’ve got the money is to trigger a bring-forward contribution.

“If they are below those balances, they might be able to do up to $360,000 worth of NCCs next year presuming they are not already in a bring-forward period.

“The fact they are going to start a pension in August 2024 really has no relevance to the contributions they make in July, whatever that happens to be and in whichever category they are going to put that under.”

He added that where the member may also decide to make a personal concessional contribution, they should be aware of the need to declare that contribution.

“I would suggest that if the member has a personal concessional contribution, they need to complete a section 291.70 notice [of the Income Tax Assessment Act 1997] to claim a tax deduction before that pension is commenced,” he said.

“For purposes of what we’ve been asked in this question, with the NCC under being made in July, we can start the pension in August. The contribution and pension are unrelated transaction streams, so no problems doing that at all.”

Copyright © SMS Magazine 2024

ABN 43 564 725 109

Benchmark Media

Site design Red Cloud Digital