The contribution changes proposed in the May 2021 Federal Budget and enacted in February 2022 are by far the most significant since the superannuation reform took effect on July 1, 2017. These, unlike other recent superannuation adjustments, provide chances for persons aged 67 to 74.
Treasury Laws Amendment (Enhancing Superannuation Outcomes For Australians and Helping Australian Businesses Invest) Bill 2022 and accompanying regulations enacted the modifications. They follow a slew of other encouraging developments since 2018, including:
- Carry forward concessional contributions – can be accumulated from 1 July 2018
- Recent retiree work test exemption – 1 July 2019
- Downsizer contributions for over 65 – 1 July 2018
- First Home Super Saver Scheme – 1 July 2017 (access from 1 July 2018)
Current Contribution Rules for Age 67 to 74 Clients (2021-22)
All voluntary payments made by clients aged 67 to 74 prior to July 1, 2022, shall be subject to a work test or work test exemption. Contributions from downsizers and superannuation guarantee payments are not taxed.
You must be gainfully employed for at least 40 hours in a 30-day period in the financial year in which the contributions are made to meet the work test.
It is considered an annual test that you take the test once you can create contributions for the complete financial year.
Work Test Exemption
You have to meet up three conditions for meeting the exemption criteria for the work test.
- In the financial year prior to the year in which you made the donation, you passed the work test (as described above).
- On June 30th of the preceding financial year, your entire super balance was less than $300,000.
- In the preceding fiscal year, you did not use the work test exemption.
Bring Forward Rules – 2021-22
The member must be 66 or younger at the start of the financial year to use the non-concessional contribution (NCC) put forward regulations. Up until June 30, 2020, this was 64 or younger. The rules for total super balance also apply.
Common Area of Confusion – Turning 65/67
This is the year in which we must consider both the implications of work tests and the rules that will be implemented this year. Each rule operates in a slightly different way.
REMOVING THE MINIMUM MONTHLY INCOME LEVEL FOR SUPER GUARANTEE
The $450 minimum monthly income restriction for superannuation guarantee payments has been eliminated. Young and part-time workers have long been considered as being disadvantaged by this.
Employers should ensure that their systems are changed by July 1, 2022, to reflect this change to avoid a superannuation guarantee charge liability.
There will be no changes to the standards for those under the age of 18 or for private and domestic employees. Unless you work 30 or more hours per week, you are not required to have a super guarantee.
FIRST HOME SUPER SAVER SCHEME FHSSS
On July 1, 2022, the maximum amount of voluntary contributions that can be released under the First Home Super Saver Scheme will increase from $30,000 to $50,000.
The annual releasable contribution limit will remain at $15,000 per year.
REMOVAL OF THE WORK TEST FOR MOST CONTRIBUTIONS
A work test will no longer be required for the following contributions as of July 1, 2022:
- Small Business CGT
- Salary Sacrifice/Super Guarantee
- Personal Injury
For clients aged 67 to 74 who desire to claim a tax deduction on personal contributions, the work test will continue to apply. The work test can be met at any point throughout the relevant financial year if a client wishes to claim a tax deduction.
If a contribution is made but the work test is not met, the client will be ineligible for a deduction and the donation will be classified as a Non-Concessional Contribution (NCC). If the client has no NCC cap or has already utilised their NCC cap, this could cause problems.
Rather than evaluating this when the donation is made, the work test will be performed when the client files a notification to claim a deduction.
EXTENDING THE BRING FORWARD TO AGE 74
The bring-forward rule permits customers to contribute up to the current Non-concessional Cap ($110,000) plus an additional $330,000 over two financial years, subject to their Total Super Balance (TSB).
To use bring forward provisions, a client must be 66 or younger during the financial year. If someone is 74 or younger at the start of a financial year and contributes before the age 75 limit, they will be able to contribute the necessary bring forward amounts.
REDUCING THE DOWNSIZER ELIGIBILITY AGE TO 60
Customers selling a qualifying home may be eligible for a downsizer contribution of up to $300,000 for each member of a marriage. A downsizer contribution is a post-tax contribution that is in addition to the NCC limits.
Currently, clients must be 65 years old at the time of contribution. Downsizer contributions will be accessible beginning July 1, 2022, to persons who are 60 years old or older at the time of contribution.
INCREASED SMSF PENSION TAXATION FLEXIBILITY
In general, SMSF pensions can account for their exempt current pension income in one of two ways: segregated or pooled. When using the pooled method, an actuarial certificate is usually required to calculate the percentage of the fund’s revenue that is qualified for the nil rate tax on pension income.