A recent Administrative Appeals Tribunal case (BVZH and FCT [2024] AATA 3618) highlights the importance of getting professional tax and financial planning advice before making large contributions to superannuation. In this case, a highly qualified solicitor made a $100,000 personal contribution to super from his after-tax money. The ATO determined this contribution was excessive, resulting in a $ 47,000 tax bill, despite the solicitor’s objections. This unfortunate situation arose from the solicitor’s misunderstanding of the super contribution rules, particularly when his “total superannuation balance” is measured for contribution purposes. He hadn’t sought any financial or tax advice beforehand. The case focused on the solicitor’s legal objection to this harsh outcome, but despite his efforts, he still ended up paying the hefty tax bill for the excess contribution. While we’ll explain some rules here, it’s crucial to get proper advice before making large super contributions, as the rules can be complex.
This article focuses on “non-concessional contributions” (NCCs) to super. These are (among other things) personal contributions you make with after-tax money, without claiming a tax deduction. There’s a limit to how much you can contribute as an NCC in a financial year. Exceeding your personal limit results in the ATO issuing an excess non-concessional contributions notice. If you don’t remove the excess within 60 days of the notice being issued, the excess NCC is taxed at 47%. Your NCC limit (or “contributions cap”) depends on your “total superannuation balance” – broadly this is the total of all your super and retirement funds as at 30 June. You can find this in your ATO online account via myGov.
The key point (which caused problems for the solicitor in the AAT case) is:
Your 30 June total superannuation balance determines your personal NCC contributions cap for the entire following financial year, regardless of how your super balances change throughout the year. For example: if your total super balance is $1.9m or more on 30 June 2024, your NCC limit for the entire 2024-25 financial year is zero; if it’s less than $1.9m, your NCC cap for 2024-25 is generally $120,000; and some people may be eligible to make $240,000 or $360,000 of NCCs if their balance is under $1.78m on 30 June 2024 and they meet the “bring-forward rule” requirements.
The lesson? Always seek advice before making large super contributions to avoid unexpected tax consequences.
Speak to one of our accountants if you have any questions about the changes in tax for 2024.
