Background
The contribution changes proposed in the May 2021 Federal Budget and legislated in February 2022 are by far the biggest changes since the 1 July 2017 superannuation reform. Unlike most recent superannuation changes these open up opportunities particularly for those aged 67 to 74.
Contribution rules for age 67 to 74 clients (2021-22)
A work test or work test exemption will need to be met all voluntary contributions made by those aged 67 to 74 prior to 1 July 2022. Downsizer contributions and superannuation guarantee payments are exempt.
Work test
To meet the work test, you must be gainfully employed for at least 40 hours during a consecutive 30- day period in the financial year in which the contributions are made. The definition of "gainfully employed " means employed or self-employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment. It does not include volunteer work.
This is an annual test. This means once you meet this test you can make contributions for the entire financial year.
Work test exemption
To meet the work test exemption criteria, you must meet three conditions:
- You satisfied the work test (as above) in the financial year before the year in which you made the contribution.
- Your total super balance is less than $300,000 on 30th June of the previous financial year.
- You have not used the work test exemption in a previous financial year.
Bring forward rules – 2021-22
To utilize the non-concessional contribution (NCC) bring forward rules the member must be 66 or younger at the commencement of the financial year. This was 64 or younger up until 30 June 2020.
Total super balance rules also apply.
| Total Super Balance at prior 30th June | NCC Cap | Allowable bring forward period
|
| Less than $1,48 million | $330,000 | 3 years |
| $1.48 million - < $1.59 million | $220,000 | 2 years |
| $1.49 million - < $1.7 million | $110,000 | No bring forward |
| $1.7 million and above | Nil | N/A |
Common area of confusion – Turning 65/67
This is the year that we need to be mindful of both work test implications and bring forward rules. The way each rule works is slightly different.
There is no leeway on turning 67 which means the day a client turns 67 they will be required to meet the work test or work test exemption to contribute voluntary contributions
The Changes from 1 July 2022
Removing the minimum monthly income level for super guarantee
The $450 per month minimum income requirement to be eligible for superannuation guarantee payments has been removed. This has long been seen as disadvantaging the young and part time workers.
No changes to under 18 requirements or private and domestic employees. Super guarantee is not mandated for these workers unless they are working 30 or more hours a week for the same employer.
Removal of the work test for most contributions
From 1 July 2022, a work test will no longer apply for the following contributions:
- Non concessional
- Salary Sacrifice/Super guarantee
- Personal injury
- Small business CGT
The work test will continue to apply for those aged between 67 and 74 that wish to claim a tax deduction on personal contributions. Should you wish to claim a tax deduction the work test can be met at any time during the relevant financial year.
Should a contribution be made, and the work test subsequently not be met you will be ineligible to claim a deduction and the contribution will remain a Non-Concessional Contribution (NCC). This may cause issues if you have a nil NCC cap or has already used their NCC cap.
Work test will be tested when you lodge a notice to claim a deduction rather than the current system of testing this when the contribution is made.
Extending the bring forward to age 74
The bring forward rule allows contributions up to the current Non-concessional Cap ($110,000) and two further financial years allowing a total of $330,000 subject to their total super balance (TSB).
The TSB impact on bring forward and annual NCC caps is outlined in the table below.
| Total Super Balance at prior 30th June | NCC Cap | Allowable bring forward period
|
| Less than $1,48 million | $330,000 | 3 years |
| $1.48 million - < $1.59 million | $220,000 | 2 years |
| $1.49 million - < $1.7 million | $110,000 | No bring forward |
| $1.7 million and above | Nil | N/A |
Currently you would need to be 66 or younger in the financial year to use bring forward provisions.
The change will mean that if someone is 74 years of age or younger at the start of a financial year and they contribute before the age 75 deadline they can contribute the relevant bring forward amounts in the above table.
Reducing the Downsizer eligibility age to 60
Those who are selling an eligible dwelling may be able to contribute up to $300,000 for each member of a couple as a downsizer contribution. A downsizer contribution is an after-tax contribution which is in addition to the standard NCC caps.
The eligibility criteria are as follows:
- The property must be in Australia and owned by the you and/or your spouse for at least 10 years.
- The property must be eligible for at least a partial main residence exemption. Or would be eligible except for the fact it is a pre-CGT asset.
- You haven’t previously made a downsizer contribution on another property.
- The ATO Downsizer NAT 75073 form is lodged with or before the contribution.
- The downsizer contribution is made within 90 days of receiving the proceeds of sale, which is usually at the date of settlement
More details on Downsizer contributions are on the ATO Website
The power of concessional contributions (carry forward)
Retiree’s, subject to age and work test, have always been able to make personal deductible contribution to super although often this type of contribution was seen as the domain of the self-employed.
The standard concessional cap is currently $27,500 (2021-22 and 2022-23).
The introduction of carry forward concessional contributions from 1 July 2018 has helped magnify this benefit in many cases particularly when a large capital gain has been realised.
Criteria and rules
- You must have total super balance of less than $500,000 on 30th June immediately prior to the financial year of contribution.
- You must have unused contributions in the previous 5 financial years. Note the scheme only started to accrue from 1 July 2018 so in 2022-23 there is potential to use four prior financial years.
- From 1 July 2023 we will have 5 unused years available in the sixth year the oldest unused year will drop off.
When contributing the current years cap will be used first. Once current years cap is exceeded contributions will be assessed against the oldest unused financial year first.
Outstanding proposals
Self-Managed Super funds – Relaxing residency requirements
As part of the 2021-22 federal Budget, the former government announced plans to will relax the residency requirements for Self-Managed Super Funds (SMSFs).
The measure if passed would allow members to continue to contribute to their superannuation while temporarily overseas (for up to five years.
At the time of the election being called this measure had not been introduced to parliament and the new government has made no comment.