Superannuation changes from 1 July 2021

Information for advisers only.

Please note, the article is relevant up to the date of the article and been preserved to provide the rules at a moment in time. For information about changes to super from 1 July 2024, please see ‘Changes to super from 1 July 2024’.

A raft of changes to superannuation rates, caps and thresholds have come into effect from 1 July 2021. 

1. Increase to the standard concessional cap, and another financial year of accrual for carry forward concessional contributions

Concessional contributions are contributions made to a client’s super fund on a before tax basis. Concessional contributions include superannuation guarantee, salary sacrifice and personal contributions which are claimed as a tax deduction.

The 2021/22 standard concessional cap has increased to $27,500 (from $25,000 in 2020/21).

Advice impacts

From 1 July 2021:

• Clients who fully utilise their concessional cap financial year to financial year will be able to contribute more pre-tax funds to their super.
• Clients who are eligible¹ to utilise carry forward concessional contributions will have a 2021/22 concessional cap of up to $102,500² minus all concessional contributions they have made since 1 July 2018³.

Example 1:

Adrian (age 57) satisfies the criteria to utilise carry forward concessional contributions including having a total superannuation balance (TSB) of <$500,000 as at 30 June 2021.

During 2021/22 he will earn taxable income of $150,000 as a sole trader.

Since 1 July 2018, Adrian has made the following concessional contributions

• 2018/19 - $20,000
• 2019/20 - $15,000
• 2020/21 - $24,000

Adrian’s 2021/22 concessional cap is $43,500. This consists of the $27,500 standard concessional cap for 2021/22, plus $5,000 (unused amount from 2018/19), plus $10,000 (unused amount from 2019/20), plus $1,000 (unused amount from 2020/21).

2. Increase to the superannuation guarantee (SG) rate

The SG rate is the minimum percentage of an employed client’s ordinary time earnings their employer must pay to their super.

The 2021/22 superannuation guarantee rate has increased to 10% (from 9.5% in 2020/21).

Advice impacts:

From 1 July 2021:

• Employed clients will receive a higher amount of SG for 2021/22 than 2020/21 assuming the same amount of ordinary time earnings.
• Clients who make voluntary concessional contributions should take the SG rate change into account when calculating the amount of their concessional cap remaining for the voluntary concessional contributions.

3. Repeal of the excess concessional contributions charge (ECCC)

The ECCC is a penalty which applies to the tax a client pays when their excess concessional contributions are included in their assessable income.

The ECCC has been abolished from 1 July 2021.

Aside from the removal of the ECCC, there is no change to the treatment of excess concessional contributions, including:

• Upon the Australian Taxation Office issuing an excess determination, the excess concessional amount is added to the client’s taxable income and is taxed at marginal rates with a 15% offset, and
• If the client elects to pay the excess concessional tax bill personally (i.e. elects to not release the excess concessional from the super environment), the excess concessional also counts towards their non-concessional cap.

Advice impacts:

• For concessional contributions made on or after 1 July 2021, there is no longer any ‘real penalty’ for exceeding the concessional cap.
• Clients who have exceeded their concessional cap in 2020/21 and prior financial years may still be subject to the ECCC. The amount of the ECCC will be specified on the excess determination.

4. Increase to the non-concessional cap and the total superannuation balance (TSB) eligibility criterion

Non-concessional contributions are contributions made to a client’s super fund on an after tax basis. Non-concessional contributions include personal contributions not claimed as a tax deduction, and spouse contributions.

The 2021/22 standard non-concessional cap has increased to $110,000 (from $100,000 in 2020/21). As a result, the 2021/22 non-concessional cap using the three year bring forward provision has increased to $330,000 (from $300,000 in 2020/21).

The TSB eligibility criterion to make non-concessional contributions has also changed, as summarised in the below table.

If eligible to trigger the bring forward during 2021/22 and other eligibility criteria⁴ are satisfied.

If a client triggered the non-concessional bring forward by making non-concessional contributions of more than $100,000 during either 2019/20 or 2020/21, different rules will apply as illustrated in example 3.

Advice impacts

• Most clients will be able to contribute more funds to their super on an after tax basis.
• As the operation of the non-concessional cap and the TSB eligibility criterion are now more complicated, it is even more important to ensure that clients do not breach their non-concessional cap.

Example 2:

Betty (age 63) is retired and had a TSB as at 30 June 2021 of $1,000,000. During 2021/22, she wants to make personal non-concessional contributions.

Betty has previously made the following non-concessional contributions:

• 2018/19 and prior financial years - Nil
• 2019/20 - $90,000
• 2020/21 - $100,000

Betty can make non-concessional contributions without regard to the work test or work test exemption as she will be under age 67 at the time of the non-concessional contribution. Also, as she is under age 67 as at 1 July 2021, she is eligible to use the bring forward provision.

Betty is eligible to make non-concessional contributions of up to $330,000 during 2021/22. This is because she did not trigger the bring forward provision during either 2019/20 or 2020/21 and her TSB as at 30 June 2021 is <$1,480,000.

Example 3:

Cameron (age 60) is retired and had a TSB of $1,300,000 as at 30 June 2019, and a TSB as at 30 June 2021 of $1,450,000. During 2021/22, he wants to make personal non-concessional contributions.

Cameron has previously made the following non-concessional contributions:

• 2018/19 and prior financial years - Nil
• 2019/20 - $101,000
• 2020/21 - Nil

Cameron can make non-concessional contributions without regard to the work test or work test exemption as he will be under age 67 at the time of the non-concessional contribution. However he cannot trigger the bring forward during 2021/22 as he has already done so during 2019/20.

Cameron is eligible to make non-concessional contributions of up to $199,000 during 2021/22. This is because:-

• He triggered the bring forward during 2019/20 (when the bring forward amount was $300,000) by contributing more than the standard non-concessional cap at the time of $100,000. Therefore $300,000 - $101,000 = $199,000, and
• His TSB as at 30 June 2019 was <$1,400,000⁵ , and
• His TSB as at 30 June 2021 was <$1,700,000⁶

Irrespective of his 2021/22 non-concessional contributions, subject to the other criteria Cameron will start the 2022/23 financial year with a ‘fresh slate’. This is because the 2019/20, 2020/21, 2021/22 three year bring forward period will have expired on 1 July 2022.

5. Increase to the general transfer balance cap (TBC)

The transfer balance cap limits the amount of superannuation funds which can be transferred to retirement phase income streams, (most commonly account based pensions (ABP).

The 2021/22 general transfer balance cap has increased to $1,700,000 (from $1,600,000 in 2020/21).

Whilst the general transfer balance cap has increased on 1 July 2021, a client’s personal transfer balance cap will only increase in proportion to their used personal TBC based on their highest ever personal TBC balance between 1 July 2017 and 30 June 2021.

As a result, clients will have their own personal transfer balance cap which will depend on their personal transfer balance cap history.

Advice impacts:

From 1 July 2021, for TBC purposes there are three main categories of clients.

• Clients whose personal TBC remains at $1,600,000: This applies to clients who fully utilised their TBC between 1 July 2017 and 30 June 2021. This category includes clients who during this period commenced an ABP with a purchase price of $1,600,000 or greater, even if they have subsequently had other TBC events such as rolling an ABP back to the accumulation phase of super.
• Clients whose personal TBC increases to $1,700,000: This applies to clients who have not had a TBC event between 1 July 2017 and 30 June 2021.
• Clients whose personal TBC increases to somewhere between $1,600,000 and $1,700,000: This applies to clients who have had a TBC event between 1 July 2017 and 30 June 2021 however have not fully utilised their TBC during this period as illustrated by example 4.

Example 4:

Debra (age 60) purchased a ABP (ABP #1) on 20 April 2019 with a purchase price of $1,200,000. This is her only transfer balance cap event between 1 July 2017 and 30 June 2021. She also has $1,000,000 in the accumulation phase of super.

On 29 July 2021, she wants to use her funds in the accumulation phase of super to commence another ABP (ABP #2) which fully utilises but does not exceed her personal TBC.

To do so, Debra uses $425,000 of her superannuation accumulation to purchase ABP #2.

To determine this figure, Deborah first calculated her personal TBC ⁷. As between 1 July 2017 and 30 June 2021 Debra’s highest ever personal TBC balance is $1,200,000, she has used 75% of her TBC and therefore has 25% remaining. Of the $100,000 general TBC increase, Debra’s personal TBC increases by $25,000 ($100,000 x 25%).

Therefore Debra’s personal TBC as at 1 July 2021 is $1,625,000 ($1,600,000 previous general TBC plus $25,000 increase).

Debra’s $1,625,000 personal TBC minus the $1,200,000 credit event from ABP # 1 = $425,000.

As the TBC is events based, Debra does not need to consider the balance of ABP #1 when commencing ABP #2.

6. Increase to preservation age

A client’s preservation age is relevant for various superannuation matters.

Clients with a date of birth between 1 July 1963 and 30 June 1964 (inclusive) have a preservation age of 59.

This means that (unlike 2020/21), if a client attains age 58 during 2021/22, they will not have attained their preservation age.

Advice impacts:

Only clients who have attained their preservation age are able to:

• Withdraw a lump sum from superannuation upon satisfying the ‘retirement after preservation age’ condition of release.
• Access the low rate cap for the taxable portion of lump sum superannuation withdrawals.
• Commence a retirement phase superannuation pension (such as an account based pension) upon satisfying the ‘retirement after preservation age’ condition of release.
• Commence a transition to retirement superannuation pension (for clients who have not satisfied a condition of release).

7. Other superannuation changes

From 1 July 2021, various other superannuation caps and thresholds have been indexed as summarised in the table below.

The  following superannuation caps and thresholds have not been indexed and are the same for 2020/21 and 2021/22.

1. To be eligible to receive carry forward concessional contribution, a client must:-
· Have a total superannuation balance of <$500,000 as at 30 June of the previous financial year.
· Satisfy the contribution standards i.e. at the time of the contribution, the client is under age 67, or age 67-75 and satisfies the work test or work test exemption.
· Follow the usual process and timeframes if using the carry forward via making personal contributions which are claimed as a tax deduction and generate sufficient taxable income to offset the deduction.
2. The standard concessional cap for 2018/19, 2019/20 and 2020/21 was $25,000, and the standard concessional cap for 2021/22 is $27,500. ($25,000 x 3) + $27,500] = $102,500.
3. If previous concessional contributions have exceeded the client’s personal concessional cap, for this purpose the amount of the excess concessional contributions are disregarded.
4. In addition to the TSB eligibility criterion, to be eligible to receive non-concessional contributions, a client must have satisfied the contribution standards i.e. at the time of the contribution the client is under age 67, or age 67-75 and satisfies the work test or work test exemption.
5. This was the TSB to contribute the full $300,000 bring forward during 2019/20 i.e. the year in which he triggered the bring forward. If Cameron’s TSB as at 30 June 2019 was between $1,400,000 and $1,499,999, he would be able to contribute up to $330,000 during 2021/22 as he would have only triggered a two year bring-forward which would have expired on 1 July 2021.
6. If the bring forward was triggered but not fully utilised, non-concessional contributions during the following two financial years are subject to having a TSB as at 30 June of the previous financial year of less than the standard transfer balance cap ($1,700,000 for 2021/22).
7. In Debra’s example, her highest ever personal TBC balance is the same as her TSB balance as at 30 June 2021. However this will not be the case for clients who between 1 July 2017 and 30 June 2021 have had a TBC debit event such as a lump sum commutation from an ABP or rolling an ABP to the accumulation phase.