On 1 July 2017, the concessional contributions cap was lowered to $25,000 for everyone. Members of Australian Government defined benefit superannuation schemes also will have a higher amount of notional employer contributions counting towards this cap for the 2017/18 and following financial years.
The following factual information is designed to help members of the Commonwealth Superannuation Scheme (CSS) and Public Sector Superannuation Scheme (PSS) to understand how their defined benefit contributions will affect their concessional contributions cap from July 2017.
Concessional contributions
Concessional contributions include employer superannuation contributions (e.g. mandatory super and salary sacrifice contributions) and any personal superannuation contributions claimed as a tax deduction.
There is a limit on the total amount of concessional contributions that can be made on behalf of any person in a given financial year. This limit is called the concessional contributions cap.
The concessional contributions cap will be reduced to $25,000 for everyone from 1 July 2017. CSS and PSS members will have their available cap further reduced by the amount of their defined benefit contributions.
Exceeding the concessional cap
For members whose defined benefit contributions exceed the cap, excess concessional contributions tax will not be charged on any of their defined benefit contributions. However, their concessional contributions cap will be reduced to zero for the purposes of their other concessional contributions and extra tax may be payable on those other contributions over the cap.
What are defined benefit contributions?
Defined benefit contributions are notional contributions calculated in accordance with the factors and methodology set out in Schedule 1AA of the Income Tax Assessment Regulations 1997 (ITAR 1997). CSS and PSS defined benefit contributions only apply to accruing members of the CSS and PSS.
The formula requires the use of scheme-specific factors, known as New Entrant Rates (NER), which are determined by an actuary using the statutory assumptions set out in the ITAR 1997.
You can obtain the relevant actuary certificate, which includes the New Entrant Rates, from the scheme trustee, the Commonwealth Superannuation Corporation.
Accruing members
Accruing members are people who at some stage during the financial year were required to make personal contributions to the CSS or PSS, including situations where contributions were otherwise due but the person elected to contribute at 0%.
Non-accruing members are people who did not contribute to the CSS or PSS at anytime during the relevant financial year and who:
- were preserved benefit members of the CSS or PSS, or
- were in receipt of a pension from the CSS or PSS (other than a partial-invalidity pension).
Non-accruing periods are not counted towards the defined benefit contribution calculation and these include:
- for a person who rejoined the scheme at some stage during the year, the period from the start of the financial year to the recommencement date
- for a person who ceased to be a contributing member during the financial year, the period following the date of the member’s cessation
- any period where contributions are not payable because the person has reached his/her maximum benefit limit, and
- any period(s) of leave without pay (LWOP) where contributions are not payable by the person.
CSS/PSS defined benefit contributions
Super Info has developed an online tool to help individuals and financial professionals estimate the amount of notional defined benefit contributions for Australian Government defined benefit schemes. Click here for more.
Hi , for pss does the contribution rate 5-10% affect the notional amount. If so what is your table based on for pss ?
Thanks
Hi Paul.
Thanks for this good question. A member’s contribution rate in the PSS can affect the amount of defined benefit contributions. However, a member on a given salary (assuming no salary increases throughout the year) contributing at 5% for the entire year will have the same notional defined benefit contributions as a full-time member contributing 10% for the entire year on that same salary (again assuming no salary increases).
The table will work for full-time PSS members contributing at a single rate from 5% to 10% for the entire year. The table may be not be as accurate where a member is contributing less than 5% or where the member changes his/her contribution rate at anytime during the relevant financial year.
I hope this helps and thanks again.
Kind regards
Dan
Dan – will these changes also apply to MSBS?
Hi Hayden.
Thanks for your question. These changes will also apply to the MSBS and DFRDB. The notional defined benefit contributions for these schemes are calculated using the same methodology but different factors to those applying to the CSS and PSS.
I am preparing a similar information sheet covering the military schemes, which should be available shortly.
Kind regards
Dan
Hi Hayden
I have just published a new article in relation to concessional super contributions (available from the home page). I’ve included specific information for members of the DFRDB and MSBS.
I hope it is useful.
Kind regards
Dan
Hi Dan,
If somebody has a notional super balance greater than $1.6million can they still make after-tax contributions to the PSS and have those matched by the employer? My understanding is that individuals cannot make non-concessional contributions at that point, so would their benefit only accrue at 0.11 each year?
Alternatively, would it be possible to claim PSS contributions as concessional contributions post 1 July 2017?
Hi Hunter. Thanks for your question. This is a complicated area of tax law and the answer could vary from individual to individual. My general understanding is that:
1. PSS member contributions cannot be claimed as a tax deduction.
2. There may be options for contributing PSS members to apply to have amounts released from other super accumulation funds to allow them to continue to contribute to the PSS after reaching balances of $1.6million in super.
However, I am not a registered tax agent/adviser. Therefore, you should confirm this with a registered tax agent or the Australian Taxation Office (ATO) before making any decisions in relation to these matters. The ATO should also be able to assist you with understanding the process for having any funds released to allow continued contributions to the PSS.
Please remember that this information is general in nature only and does not take into account your own financial situation, objectives or needs. You should consider obtaining personal advice before making financial decisions.
I hope this is helpful.
Kind regards
Dan
Dear Blog Users
The impacts of the New Super Cap $1.6 Million on PSS/CSS (Defined Benefits Pensions) on the pensioners who have been pensioned on invalidity basis.
I have have friends to search the relevant websites regarding the above TCAP but no information has been found.
Is invalidity pension is included in the CAP?
PSS’ info on their website states YES but with some modifications etc
What modification?