A number of changes in superannuation laws will come into effect from 1 July 2022, bringing you opportunities, particularly if you are in retirement or nearing retirement age.
We have been strongly in favour of these reforms since they were first flagged in the Federal Government’s 2021 Budget and summarise the key changes below. Your Private Client Adviser looks forward to discussing with you their suitability.
1. Abolition of the superannuation ‘work test’
Currently, the ‘work test’ requires those aged 67-75 to be gainfully employed for at least 40 hours in any 30-day period in a financial year to be able to make contributions to superannuation.
From 1 July 2022, the work test will no longer apply in determining whether superannuation funds can accept contributions from members in this age bracket (subject to annual contributions caps and other applicable rules).
In practice, this means that:
- Individuals aged 67-75 can continue to top up their superannuation through voluntary contributions (i.e. personal, or salary sacrificed contributions) regardless of their working status.
- A work test still applies if an individual in this age bracket wishes to claim a tax deduction for any personal contribution (i.e. concessional contribution). In effect, this means that the onus of meeting a ‘work test’ is transferred from being a superannuation requirement to a general tax requirement.
- The ‘bring forward’ rules have also been applied to this extended age bracket, to allow individuals to bring forward an additional two years of non-concessional contribution caps ($110,000 p.a or up to $330,000 using the two prospective years brought forward, subject to having a Total Superannuation Balance of less than $1.7 million).
Generally, this is good news for any retired clients aged 67-75 with less than $1.7 million in superannuation (subject to applicable Total Superannuation Balance), as topping up superannuation was previously off-limits without meeting a work test.
The changes also bring into play a range of potential strategies to optimise the amount and tax profile of total assets within superannuation, with significant potential tax and estate planning (death benefit) benefits.
Specific rules still apply so please speak to your Private Client Adviser to know more.
2. Extension of ‘downsizer contributions’ to age 60
Another welcome change is the reduction in the age at which individuals may be eligible to make downsizer contributions (to age 60, from age 65 currently). From 1 July 2022 this will allow those aged 60-64 to contribute an additional $300,000 (each, or $600,000 for a couple) into superannuation following the sale of an eligible property.
Please refer to my colleague Jenny’s article here, for a comprehensive discussion of downsizer contributions and why they are a compelling opportunity to boost superannuation benefits.
The broadening of the age criteria is particularly beneficial in the current post-Covid era, where many younger couples (or individuals) are deeply considering their lifestyle preferences, including the making of ‘tree’ or ‘sea’ changes.
An election year Boomer-bonus?
The cynical amongst us may (probably rightly) consider the above superannuation changes targeted to benefit ‘boomers’ in an election year. But just for good measure, the act of parliament just passed also included a couple of changes to benefit younger Australians.
- Extension of First Home Super Saver Scheme: An increase to $50,000 (from $30,000 currently) of the amount of voluntary superannuation contributions that can be released (with associated earnings) and used for a deposit on a first home
- Abolition of the $450 per month income threshold under which employees do not have to be paid the superannuation guarantee by their employer.
These are all sensible, worthy reforms which only reinforce the value of Australia’s superannuation system in providing for the financial livelihood of our population in retirement.
They also may present several strategic opportunities to optimise your superannuation affairs.
Your Private Client Adviser will contact you in due course to discuss if there is an opportunity from these changes for you.