Changes to superannuation bring new opportunities
Changes to super contribution rules from 1 July may be a great opportunity to revisit your strategy to and boost your super, pre and post retirement.
Why super?
Super, for most of us, is a concessionally taxed investment. This means that returns on your super investments are generally taxed at a rate that is less than your marginal tax rate. Earnings are taxed at up to 15% in accumulation phase or 0 % in retirement phase.
Depending on your circumstances, this can make it a great way to boost your savings and pay less tax.
What’s changing?
- The removal of the work test for personal (after-tax) contributions and salary sacrifice contributions; and
- The eligible age to make a downsizer contribution reduces from 65 to 60
- An increase to the amount of after-tax contributions that may be made within a single financial year.
Key changes and opportunities at a glance
Removal of work test
Traditionally as our clients have looked towards retirement, we’ve looked for opportunities to top up super with after tax money – known as non-concessional contributions or NCCs.
Currently, a work test (at least 40 hours in a consecutive 30 day period) is required before you can make after tax and salary sacrifice contributions to super.
This requirement is removed from 1 July 2022 for individuals aged 67-74, which create opportunities for those already retired but with savings or investments outside of super to contribute to super to reduce tax.
Of course other eligibility requirements to make contributions continue to apply, such as total super balance limits and contribution caps.
Increasing limits on after-tax contributions
The current annual after tax or non-concessional contributions (NCC) cap is $110,000. NCCs include:
- personal contributions for which you don’t claim a tax deduction
- spouse contributions, and
- certain amounts you may transfer from an overseas super fund.
If you meet the requirements, you may be eligible to ‘bring-forward’ NCCs of up to $330,000 from future financial years, to make even larger contributions. This is known as the ‘bring-forward rule.’
At present you need to be under 67 years of to use the bring-forward rule, but from 1 July 2022, you may be able to access the bring-forward rule if you’re aged less than 75 on the prior 1 July.
Again other eligibility rules will continue to apply, such as the total super balance limits.
Note: Contribution caps apply to both concessional and non-concessional contributions. Care should be taken to avoid breaching your cap as additional tax and/or other penalties may apply.
Downsize your home and increase your super.
Downsizer contributions are a great way to boost your super using the proceeds of the sale of your home, without impacting other contribution caps. Unlike NCCs, downsizer contributions do not have a total super balance limit, or an upper age limit.
This means it could be a great, final way to boost super for those who don’t meet other eligibility rules to contribute, or where the NCC cap has been earmarked for other purposes.
What’s changing?
From 1 July 2022, the eligibility age is reducing from 65 to 60. The age reduction increases the number of individuals who may be eligible to make a downsizer contribution and boost their retirement savings, perhaps pre-retirement.
What’s the limit?
Provided certain other conditions are met, it may be possible to contribute up to $300,000 per person (or $600,000 per couple) from the proceeds of selling your home.
What’s the benefit?
On top of benefiting from super being a concessionally taxed investment, downsizer contributions won’t count towards your concessional or non-concessional contribution caps.
In addition, downsizer contributions could benefit you from a Centrelink perspective, as funds in super accumulation phase are an exempt asset for social security purposes while you are under your Age Pension age.
This could help increase or maintain your or your spouse’s entitlement to a pension or other benefit. Other eligibility rules and requirements apply.
Speak to your FMD adviser to find out if a downsizer contribution is right for you.
Other opportunities
Greater opportunity to use your super to help buy your first home.
The First Home Super Saver Scheme (FHSSS) allows you to make voluntary contributions of up to $15,000 per year within your concessional and NCC caps and you can later withdraw an amount of those voluntary contributions plus earnings (calculated at a set rate by the ATO on the amount you withdraw).
The maximum amount of voluntary contributions that you can withdraw increases from $30,000 to $50,000 from 1 July 2022. This boosts the amount that can be accessed from super and directed to buying your first home.
There is a range of criteria to withdraw your super under this scheme and the funds must be used to purchase your first home, so it’s important to seek advice first.
The minimum income threshold to receive the superannuation guarantee is abolished
Superannuation Guarantee (SG) requires employer to pay a minimum level of super support for eligible employees. One criteria for an employee to be eligible is based on that employee’s monthly earnings being at least $450 per month.
However, this threshold is abolished from 1 July 2022, allowing all eligible employees to receive SG paid into their super fund. This measure primarily assists low-income earners to have employer contributions paid to super boosting their retirement savings.
What's next?
There are certainly some good opportunities to come from the impending changes to superannuation contributions. Speak to your FMD adviser if you have any questions about how you may benefit given your individual circumstances.
General advice disclaimer: This article has been prepared by FMD Financial and is intended to be a general overview of the subject matter. The information in this article is not intended to be comprehensive and should not be relied upon as such. In preparing this article we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained on this article to particular circumstances. FMD Financial, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained on this article. FMD Group Pty Ltd ABN 99 103 115 591 trading as FMD Financial is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977. The FMD advisers are Authorised Representatives of FMD Advisory Services Pty Ltd AFSL 232977. Rev Invest Pty Ltd is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977.