A recent case from the Administrative Appeals Tribunal (BVZH and FCT [2024] AATA 3618) underscores the necessity of obtaining professional tax and financial planning advice before making substantial contributions to superannuation. In this instance, a highly qualified solicitor made a personal contribution of $100,000 to his superannuation from after-tax income. The ATO classified this contribution as excessive, resulting in a tax bill of $47,000, despite the solicitor’s objections.

This unfortunate outcome stemmed from the solicitor’s misunderstanding of the super contribution rules, particularly concerning how his “total superannuation balance” is assessed for contribution limits. Notably, he had not sought any financial or tax advice prior to making the contribution. The case revolved around the solicitor’s legal challenge to this outcome, but despite his efforts, he was still left with a significant tax liability for the excess contribution.

While this article will outline some relevant rules, it is crucial to seek proper advice before making large super contributions, as the regulations can be complex.

Understanding Non-Concessional Contributions (NCCs)

This article focuses on “non-concessional contributions” (NCCs) to superannuation. NCCs are personal contributions made with after-tax money, where no tax deduction is claimed. There is a cap on how much you can contribute as NCCs in a financial year, and exceeding this limit results in the ATO issuing an excess non-concessional contributions notice. If you do not remove the excess amount within 60 days of receiving the notice, the excess NCC will be taxed at a rate of 47%.

Your NCC limit (or “contributions cap”) is determined by your “total superannuation balance,” which broadly refers to the total of all your super and retirement funds as of 30 June. You can find this information in your ATO online account via myGov.

Key Points to Remember

A critical aspect that caused issues for the solicitor in the AAT case is that your total superannuation balance as of 30 June determines your personal NCC contributions cap for the entire following financial year, irrespective of any changes to your super balances throughout that year. For example:

• If your total superannuation balance is $1.9 million or more on 30 June 2024, your NCC limit for the entire 2024-25 financial year will be zero.
• If it’s less than $1.9 million, your NCC cap for 2024-25 is generally $120,000.
• Some individuals may be eligible to make NCCs of $240,000 or $360,000 if their balance is under $1.78 million on 30 June 2024 and they meet the “bring-forward rule” requirements.

Always seek professional advice before making large super contributions to prevent unexpected tax consequences.