In welcome news the Federal Parliament last week passed the Treasury Laws Amendment Bill 2021. Effective from 1 July 2022, this legislation will implement the following superannuation changes, which were first proposed in the May 2021 Federal Budget:
- Partially removing the work test for those aged 67 to 75.
- Extending the non-concessional contributions bring-forward age limit to age 75.
- Reducing the downsizer contribution eligibility age to age 60.
- Increasing the maximum First Home Super Saver Scheme withdrawal amount to $50,000.
- Removing the monthly minimum threshold for Superannuation Guarantee (SG) Contributions.
- Giving greater choice and flexibility to super fund trustees in choosing the taxation method (segregated or proportional) for their fund within a tax year.
1. Partially removing the work test for those aged 67 to 75
The existing work test (broadly a minimum of 40 hours of gainful employment within a period of 30 days) or the ‘work test exemption for recent retirees’ will no longer be required from 1 July 2022 for individuals aged 67 to 75 who make/receive salary sacrifice or non-concessional contributions (NCCs).
The work test or recent retiree exemption will still be required for individuals in that age range who wish to claim a tax deduction for their personal contributions. Under the new rules, the work test can be met in any period in the financial year of the contribution. This is different to the current rules, where the work test must be met prior to contributing.
If the client has made a contribution and has not met the work test, they will be ineligible to claim a tax deduction for the contribution. The contribution will be classified as NCC and will count towards the client’s NCCs cap.
The existing upper age limit on making voluntary contributions (within 28 days of the end of the month where the member reached age 75) remains unchanged (with the exception of downsizer contribution).
Enabling regulations will be required to give effect to this measure.2. Extending the non-concessional contributions bring-forward age limit
The cut-off age for accessing the NCCs bring-forward rule will be increased from 67 to 75 years. This means that many individuals aged 67 to 74 years (inclusive) who were not previously able to bring forward NCCs cap amounts due to their age, may now do so from 1 July 2022.
This may also present the opportunity for individuals with high taxable components within their balances to undertake a recontribution strategy to reduce the amount of tax payable on any money their non-tax dependent beneficiaries receive.3. Reducing the eligibility age for downsizer contributions to age 60
Individuals aged 60 or older (no upper age limit) at the time the contribution is made can now make downsizer contributions from 1 July 2022. The maximum downsizer contribution amount of $300,000 per eligible person and other eligibility requirements are unchanged.
The current age of 65 will remain until 30 June 2022 with all other eligibility requirements still remaining in place.
4. Increasing the maximum First Home Super Saver Scheme withdrawal amount to $50,000
The FHSSS is a scheme that allows first home buyers to save part of their home purchase deposit in the concessionally taxed superannuation environment. The maximum FHSSS withdrawal amount will be increased from 1 July 2022 from the current limit of $30,000 (plus notional earnings, less tax) to $50,000 (plus notional earnings, less tax).
5. Removing the minimum monthly threshold for SG contributions
From 1 July 2022, there will no longer be a minimum monthly threshold for an eligible employee to qualify for SG contributions. This means that even where an eligible employee earns less than $450 in a calendar month, there is now an obligation on the employer to make SG contributions.
6. Improving flexibility of exempt current pension income calculation
Where a super fund is running both retirement phase pensions and accumulation interests within a year, fund trustees will now have greater flexibility in being able to choose between the ‘segregated’ and ‘proportional’ methods when calculating the fund’s tax liabilities. This will simplify compliance obligations as in this scenario, trustees could choose to apply the proportionate (unsegregated) method for the whole of the income year based on a single actuary’s certificate.
If you have any questions about the above, please contact Prosperity Financial Adviser Phillip Bures on pbures@prosperity.com.au to discuss.
This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. Please contact us if you want more information. Prosperity Wealth Advisers Pty Ltd (ABN 32 141 396 376), Authorised Representative and Credit Representative of Hillross Financial Services Ltd, Australian Financial Services Licensee and Australian Credit Licensee 232 706.
