In addition to the usual year-end to-do list for financial advisers, in the mix this year are changes regarding downsizer contributions, the superannuation guarantee and the Covid-related measure on minimum pension drawdowns.
Tim Howard, Technical Consultant, BT, said, “Despite signs of a slowdown, property is still changing hands at a relatively high rate in Australian cities, and some clients who have been contemplating downsizing will proceed with their plans to sell the family home. Placing some of the sale proceeds into super can be a tax-effective strategy for empty nesters. From 1 July, more Australians may access this strategy, with the eligibility age for making a downsizer contribution lowering.”
Financial advisers seeking clarity on technical topics regarding superannuation, tax and social security regularly contact BT’s Technical Services team, who field over 2,000 queries from advisers every quarter. In the leadup to the EOFY, based on the number of questions coming through from advisers, the team has seen greater adviser focus on the downsizer contribution, as well as more complex tax and estate planning especially for SMSFs.
The most popular EOFY-related queries raised by advisers so far in the April to June 2022 quarter are below.
Clients looking to sell their homes may not be aware that the eligibility age for making a downsizer contribution into super is coming down in the new financial year, to 60 years. Prior to 1 July 2022, a person has to be 65 years or older to make a downsizer contribution.
“Notably, if your client is about to turn 60, it’s worth checking if they are eligible, bearing in mind that generally from the date of settlement of the property sale, the client has 90 days in which to make the downsizer contribution,” explained Mr Howard. “The crucial date is when the client puts the money into super. For example, at settlement, your client may be age 59, then turn 60 from 1 July. They will still be able to make a downsizer contribution from their birthday, if it falls within the 90 day-period.”
To be able to contribute proceeds from the property sale into their super, clients need to have owned their home for 10 years or more. A downsizer contribution – up to $300,000 maximum – doesn’t count towards any of the contribution caps, and can still be made even if a person has total super savings greater than $1.7 million. A client’s spouse can also make a downsizer contribution to their own super, of up to $300,000 from the same proceeds, even if they are not an owner of the property.
A separate point to note, for clients looking to sell an investment property, is to consider contributing some of the sale proceeds into super, to potentially reduce their capital gains tax (CGT) liability, with the tax rate in super at 15%, compared to paying CGT at the marginal rate, which could be as high as 47%.
2. Business owners making super guarantee payments
Advisers may wish to remind their business clients who have employees that the superannuation guarantee (SG) is increasing to 10.5% in the new financial year.
Furthermore, the $450 minimum threshold is disappearing. Currently, if an employee receives under $450 (before tax) in salary or wages in a calendar month, their employer does not have to pay the SG for them. From 1 July, employers must pay the SG regardless of how much employees are paid.
“The removal of the minimum threshold largely impacts younger workers, but also potentially older people working part-time,” Mr Howard said. “As many industries in Australia are experiencing labour shortages, former retirees who decide to return to work may be pleasantly surprised that they are earning super as part of their pay packet.”
Clients planning to make spouse contributions as part of their tax strategy should be reminded to do so before EOFY.
“Clients who typically benefit from this strategy are in a relationship where one person is in a high-income bracket, and the other person has a lower level of personal income,” said Mr Howard. “The person with the higher income is generally better off maximising their personal contributions first, as this is likely to reduce their taxable income. That person can then consider making an after-tax contribution into their spouse’s super fund to receive the spouse contribution tax-offset.”
It’s important to note that the receiving spouse is not precluded from also getting the government co-contribution, however they would need to make an additional personal after-tax contribution.
4. Superannuation members making personal contributions into super
More generally, anyone looking to claim a tax deduction for making personal super contributions in this financial year, should make the contributions before 30 June.
As always, advisers should keep in mind the cut-off dates for transactions to be reflected in year-end statements – each super fund or wealth management platform can vary, and the deadlines can be several days before 30 June.
To ensure personal contributions for clients aged 67 or over can be made, advisers should check clients’ eligibility to contribute, such as meeting the work test.
In addition, prior to lodging their income tax return for FY2022, super members must submit a notice of intent to claim a tax deduction for the amount of the contribution with the trustee of their fund, and receive acknowledgement that the notice has been accepted.
“Another point to note is that many clients will have carry forward contribution cap space available, particularly since they can carry forward unused amounts from the previous three years into the current year,” Mr Howard said. “That means clients may be able to make extra concessional contributions, without having to pay extra tax.”
5. SMSF trustees accepting personal contributions into super
SMSF clients may need to be reminded of their obligations as trustees in relation to accepting personal super contributions from members. A trustee must acknowledge the receipt from a member of their notice of intent to claim a deduction, to ensure the tax deduction for the contribution is processed correctly.
6. Pension members
Clients may be wondering whether superannuation-related policies introduced during the pandemic are still in place – such as the flexibility for pension members to keep more of their money invested.
The federal government had temporarily halved minimum drawdown amounts, so those who are in pension phase can choose to withdraw less of their retirement savings and keep a greater amount invested, while markets were volatile and interest rates were at historical lows. This policy has been extended to 30 June 2023.
7. Cash levels
Advisers may wish to review and look ahead to the level of cash in client accounts on wealth management platforms for the July and August period. Asset drawdowns to fund payments from platforms – such as pension payments – can be impacted after year-end, as trade settlements may take longer than usual, due to pending distributions from fund managers.
This information was prepared by BT, a part of Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian Credit Licence 233714 (Westpac) and is current as at 1 June 2022.
The information provided is general information only and it does not constitute any recommendation or advice. It is intended to provide an overview or summary and should not be considered a comprehensive statement on any matter or relied upon as such. Any recommendation or opinion provided does not take into account your personal objectives, financial situation or needs, and you should consider its appropriateness having regard to these factors. Any taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation.
Media Relations, BT
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