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.