It’s not often we see positive superannuation changes, however recent new laws allow those between age 67 and 74 to make voluntary non-concessional (after tax) or salary sacrifice superannuation contributions without needing to meet a work test from 1 July 2022. They will also be able – subject to eligibility – to access the ‘bring forward (annual limit) provisions’ to make larger contributions, which have been previously denied to those over age 66.
This is big news!
And presents a major opportunity for those no longer working in later years (with a total superannuation balance of less than the general transfer balance cap – currently $1.7 million) to top up their superannuation and/or adjust how their superannuation benefits may be taxed on their passing.
Prior to these superannuation changes (and up until 30 June 2022) those age 67 (plus) needed (and still do up until 30 June 2022) to meet a work test (unless recently retired with a total super balance of under $300,000), in order to make voluntary superannuation contributions. The work test requires an individual to work in gainful (paid) employment for at least 40 hours within a consecutive 30 day period – in the financial year the contribution is made.
It will still not be possible to make a personal concessional (tax deductible) contribution without meeting the work test and it is not clear why such contributions have been ruled out. However, it is great news that non-concessional (and salary sacrifice) contributions will soon be more accessible for retirees.
For those who don’t wish to or don’t have the means to top up their superannuation, but have total superannuation benefits below the threshold, it may be beneficial to consider a re-contribution strategy or re-balancing superannuation balances between spouses, in particular, if one spouse has benefits above the transfer balance cap and the other does not.
A re-contribution strategy involves withdrawing funds from superannuation (usually from a pension account) and re-contributing the funds to potentially increase the tax-free component of their superannuation benefits. While most superannuation drawings are generally tax free to members aged 60 (plus), non-tax dependents of a member (such as an adult child), will usually pay some tax on inherited superannuation. By increasing the tax-free component, such tax may be reduced. It is important that anyone considering this strategy firstly seek personal financial advice to ensure this strategy is beneficial and that they understand all costs, as it can be complex to administer and is not for everyone.
What Other Conditions Need to Be Met?
For those under age 75 after 1 July 2022, to make a non-concessional contribution, certain important conditions do still need to be met which include:
- Your total superannuation balance (at the end of the last financial year from when the contribution is made) needs to be less than the general transfer balance cap which is currently $1.7 million; and
- You need to ensure contributions you make are within the annual limits, which includes taking into account any previous use of the bring forward limits.
The non-concessional annual limit is currently $110,000. Depending on your total superannuation balance at the end of the previous financial year, you may be eligible to ‘bring forward’ up to two future year contribution limits to use in the current financial year as shown below:
|Total Super Balance at End of Last Financial Year
|Bring Forward Amount Available*
|< $1.48 million
|between $1.48 million and < $1.59 million
|between $1.59 million and < $1.7 million
*The above limits are current for the financial year ended June 2022
If the bring forward provisions are utilised, the ability to make future contributions is compromised. If, for example, $330,000 is contributed in a financial year, no further non-concessional contributions can be made in that year or in the two following years.
There have also been changes which reduce the eligible age to make a downsizer superannuation contribution to age 60 (from age 65) from 1 July 2022.
Those age 60 (plus) may be able to contribute up to $300,000 (each, for a couple) from the proceeds of selling their home, irrespective of their total superannuation balance. There are a number of conditions to meet here including that the sale qualifies (in part or full) for the capital gains tax main residence exemption and that the home has been owned for at least 10 years, so it is important to check with your financial adviser prior to making a contribution.
We note nothing in this article constitutes personal financial advice. The comments are general in nature and do not take into account the reader’s objectives, financial situation or needs. You should consider your own personal circumstances and seek personal financial advice prior to making any investment decision and make sure you obtain and read the relevant product disclosure statement(s).