From 1 July this year some positive superannuation changes are coming – creating more opportunities to grow your nest egg.
This is good news for retirees and people planning for retirement. There are also potential benefits for lower income earners and those looking to purchase their first home.
Here’s an overview of the main superannuation changes and how they might affect you. These changes are good news, however, please note that this is a high level summary only. Superannuation and retirement planning is very complex, with a range of rules and eligibility criteria – so please ensure you seek advice from professionals with the appropriate specialist knowledge.
1. Work test abolished for 67-75 years
The need to meet a work test for individuals between age 67 up to age 75 who want to contribute money personally (non-concessional) to super or arrange to salary sacrifice to super their employer has been removed.
However, for individuals who wish to make a personal contribution to super for which they want to claim a tax deduction, the work test requirement still applies.
Important note: In all references to age limits, please note that individuals need to be age 74 or less on 1 July of a financial year and contributions must be received no later than 28 days after the month in which the individual turns 75.
See ‘what is the work test?’ below for more information on this superannuation change.
2. Additional spouse contributions
The removal of the work test also opens the opportunity for additional spouse contributions.
Currently, spouse contributions can only be made if the receiving spouse is under age 70 or, if aged 65 to 69, meets the work test. Now, a spouse can receive a spouse contribution up to age 75. This can help boost your spouse’s super and may give you a nice tax offset.
3. Bring forward arrangement age increased
Individuals up to age 75 can now make non-concessional contributions using the bring forward arrangement. This is currently limited to clients under age 65.
This is where a super fund member may be able to contribute up to $330,000 (provided they have not used the bring forward rule in the previous three years and certain other conditions are met).
4. Downsizer minimum age decreased
Another of the big superannuation changes is that the minimum age to make a downsizer super contribution has been lowered from age 65 to age 60.
The ability to make a downsizer contribution is triggered by selling your home. The downsizer contribution is particularly valuable for individuals who have already used their contribution caps or have a high super balance. This is because it doesn’t count towards the contribution caps and is not limited by the $1.7m ‘total super balance’ cap.
5. Income threshold removed from Super Guarantee
The upcoming superannuation changes aren’t just for older Australians. The Super Guarantee (SG) $450 income threshold will be removed, benefiting all lower-income individuals. This means that employers who didn’t need to pay SG contributions for employees earning less than $450 a month now have to.
This should give lower income earners a boost to their superannuation. And if you’re a business owner, you will need to review your processes to ensure that SG is paid for all eligible employees.
6. First Home Super Saver Scheme increased
The maximum releasable amount for the First Home Super Saver Scheme (FHSSS) has been increased to $50,000 (plus associated earnings).
This can help individuals saving for their first home to save money in the concessionally taxed super environment. The Scheme allows an individual to make voluntary contributions of up to $15,000 per year within their concessional and non-concessional super limits which they can later withdraw.
What is the work test?
This requires an individual to be in paid work (that is employed, or self-employed for gain or reward) for a minimum of 40 hours over a consecutive 30-day period during a financial year, before making voluntary super contributions. That includes personal contributions, salary sacrifice contributions or personal tax-deductible contributions. The work test doesn’t apply to downsizer contributions (see above).
What is the work test exemption?
This allows individuals aged 67 and up to age 75, with a total super balance below $300,000 on 30 June of the previous financial year, to make voluntary super contributions for a period of 12 months from the end of the financial year in which they last met the work test.
To make a super contribution using the work test exemption, you must satisfy the following:
- you met the work test in the previous financial year
- your total super balance (across any super funds you may have) was below $300,000 at 30 June of the previous financial year
- you haven’t previously made contributions to super using the work test exemption.
Superannuation rules are very complex. The contributions and arrangements we’ve outlined have a range of eligibility requirements (not covered here) which you need to understand before contributing. It is recommended that you speak to a financial adviser and/or visit the ATO website before contributing.
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