A person who is receiving wages also receives a mandated superannuation contribution from their employer. Depending on age, individuals are also entitled to make personal contributions towards their super funds. Due to personal contributions having tax advantages, the amounts which a person can contribute each year are capped. One exception to these caps is for people, like our clients, who have received large sums of money as payment for a personal injury. These clients may be able to contribute that money to their fund without it counting towards their cap.
Concessional contributions are contributions made into your super fund before any tax is paid on them - the annual cap is currently $30,000 or $35,000 depending on your age. From 1 July 2017 this cap will be reduced to $25,000. Non-concessional contributions are generally contributions you make into your super fund after tax has been paid on them. The annual cap is currently $180,000. From 1 July 2017, the government will reduce this cap to $100,000 per year.
The personal injury exception to the caps
The Contributions for Personal Injury exception allows people who receive lump-sums to contribute all or part of that payment to super without it counting towards their non-concessional contributions cap. Eligible personal injury payments are either:
- the day an agreement for settlement of a personal injury payment was entered into;
- the day you received the personal injury payment; or
- the day on which a court order for the personal injury payment was made.
Remember, this is an exception to the non-concessional contributions cap and it is not clear that this exception will help our clients who are over 65 to satisfy the work test.
The work test imposed on clients aged 65-74
If a person aged 65 years or over wishes to make a contribution to their super fund, they must work 40 hours in a 30-day period in the financial year in which they plan to make the super contribution. Parliament recently considered changing this, but did not. The law around personal injury payments is designed to assist injured people in their time of need. The Contributions for Personal Injury exception helps our clients that little bit more, and every little bit counts. For more information about superannuation and tax queries, you can contact the ATO on 13 10 20. For advice about personal injury claims, you can call our free Adviceline on (03) 9321 9988 and speak directly to a lawyer.