Carry-forward unused concessional contributions

Homer is over 75 years old & Marge is 71 years old. They are not employed but they are doing share trading in joint names full-time fitting the ATO's definition of a share trader.

Homer is over 75 so he can't do concessional contributions to their SMSF but Marge can due to her age. Marge fits the "work test" for 67 to 74 year olds due to the share trading they do in joint names.

Marge has never made personal concessional contributions in the past. If Marge wanted to do the maximum personal concessional contribution during the 2020/21 financial year she can do a maximum personal concessional contribution of $75k since the carry-forward unused concessional contributions started from 2018/19. Marge can then claim a $75k personal tax deduction.

If Marge's personal income plus her personal concessional contribution is over $250k then she will get charged a Division 293 tax of 15%.

1. Does the above summary sound correct?

2. I've read that people try to avoid the Div 293 tax of 15% but isn't it still better to pay the 15% extra tax like this rather than paying 47% personal income tax?

 

I have no idea about the age or working test but yes you can put in $75k of concessional contributions if you have not contributed in the previous two FYs.

People try to avoid the Div 293 if they have fluctuating income as they, for example, could save these contributions for another year when their income is lower and they don’t have to pay it (remember that the highest tax brackets starts at $180k).

 

Share trading will not meet the work test. The work test requires Marge to be "gainfully employed".

Returning contributions

 

Thanks for both replies.

So only people who are employed by an employer can make personal concessional contributions to their SMSF when over 70 years old and people who are self-employed or running their own business are not allowed to.

 

Not quite.

For the 2021 financial year, a member who is over over 67 years old but not 75 years must have worked and been gainfully employed at least 40 hours within 30 consecutive days in that financial year PRIOR to making a contribution in that year. This is known as the work test. A person may also need to consider their super balance if aged 65-74 and this may affect how much if any may be contributed as a concessional, catch up or non-concessional contribution. Contributions that are non-mandated employer contributions as well as other forms of contribution could be affected. eg The work test $300K limit to prior year super balance applies. If a personal contribution subject to the work test was made in the prior tax year it may prevent one this year.

It should not be assumed the work test could be met. Given shares are in both names it puts a question mark over claiming that a share trading business exists. The nature of this activity may need advice and it may in any event fail to satisfy tests concerning employment. If Homer is the one actively trading then is Marge conducting a business ? The income may be Homer's as Personal Services Income from his efforts and exertions.

Further info under the heading age restrictions here : Claiming deductions for personal super contributions