Information for advisers only.
From 1 July 2022 a number of changes will occur to superannuation, many of which were announced back in the May 2021 Federal Budget. Many of these changes present opportunities to engage your clients and discuss options to improve their future retirement savings.
In line with existing legislation, the rate of super that an employer is required to pay for employees will increase from 10% to 10.5% from 1 July 2022.
Whilst this change will happen automatically, you may need to discuss with clients the impact this could have on salary sacrifice arrangements to ensure the additional super guarantee contributions won’t push them into having excess concessional contributions in the future, with the general cap for concessional contributions currently set at $27,500 per annum.
From 1 July 2022, the $450 monthly minimum threshold that has applied before an employer has been required to make super guarantee payments will be removed. This means employers are obligated to pay the 10.5% super guarantee for all their employees, regardless of how little the employee has been paid for the month. The only exception is if the employee is under 18 years of age, in which case they will need to have worked for at least 30 hours in the week to be eligible.
This change may mean that some clients may now be receiving super where they have never been entitled before, and it will be important for them to consider which superannuation fund they want their contributions paid into.
Whilst it has long been the case that there was no requirement to meet a work test for non-concessional contributions to super for clients under the age of 65, recently this was increased up to age 67. From 1 July 2022, the work test has been removed completely for non-concessional contributions, meaning eligible clients can make these until they turn 75.
A client will still need to have a total superannuation balance below the $1.7million threshold as at the previous 30 June to be able to make a non-concessional contribution. So, as an example, if a client aged 73 has a total super balance of $1,650,000 as at 30 June 2022, in the financial year commencing 1 July 2022, they will be able to make a non-concessional contribution of up to $110,000.
The work test has also been removed for salary sacrificed contributions. Whilst it may sound a little odd to not have to meet a work test to make a salary sacrificed contribution – which actually implies you are working and earning a salary – it does mean you can salary sacrifice an amount to super even if you don’t meet the old work test requirement of 40 hours of gainful employment within a 30 consecutive day period. However, you still need to be mindful that clients will have a general concessional cap limitation of $27,500 that continues to apply to the amount that could be salary sacrificed, and this includes any employer contributions such as superannuation guarantee payments. Their personal concessional cap may be higher if they are eligible to apply their carry forward concessional contributions amounts.
Despite these positive changes about the removal of the work test, if a client over age 67 wishes to claim a tax deduction for a personal contribution made to their super from 1 July 2022, they will still be required to meet the work test requirements.
This means the individual will need to have been gainfully employed (which includes being self-employed) for at least 40 hours within any consecutive 30 day period in the financial year. Alternatively, they may meet a work test exemption in certain limited circumstances.
With the ability to make non-concessional contributions having been extended to age 75 from 1 July 2022, the ability for a client to utilise the bring forward provisions to make up to three years of contributions in one year has also been lifted.
From 1 July 2022, a client would meet the age based criteria to trigger a bring forward contribution if they are less than 75 at any time in the financial year. This means a contribution of up to $330,000 (based on the current limits) could be made. However, it is important that whilst the bring forward contribution is available in the financial year the client turns 75, they would need to make the contribution before they turn 75, as non-concessional contributions cannot be made after that time.
Despite initial indications to the contrary, there is no phased out approach as a client nears 75. A client’s eligibility is therefore determined by the standard rules, which include that they have not previously triggered the bring-forward provisions, thereby limiting their potential contributions in that year. In addition, the level of bring forward available is also determined by how far a client’s total super balance is below the total super balance threshold of $1,700,000 as at the previous 30 June.
The maximum amount that can be contributed under the bring forward rule for the year commencing 1 July 2022 is shown in the following table:
Client’s total super balance as at 30 June 2022
Maximum allowable non-concessional contribution
$1,700,000 and above
$1,590,000 to $1,699,999
$1,480,000 to $1,589,999
Less than $1,480,000
The 50% temporary reduction in the minimum payment required from account based pensions will be extended from 1 July 2022 for another 12 months.
This means if your client does not require the standard minimum payment from an account based pension for the next 12 months, as has been the case for the past three financial years, they can reduce the minimum payment requirements.
The minimum drawdown requirements for the year commencing 1 July 2022 are shown in the following table:
Age at 1 July 2022
(or commencement if started during the financial year)
Standard minimum percentage of Account Balance required to be paid
Reduced minimum rates for the 2022/23 financial years
|65 to 74
|75 to 79
|80 to 84
|85 to 89
|90 to 94
|95 or more
It is important to see if the provider of a client’s account based income stream will automatically apply the reduced payment level, or whether action is required to reduce the payments if necessary. If a client requires more than the reduced minimum amount, and is close to their transfer balance account limit, it may be worth considering reducing payments to the minimum level required and topping up any cash needs with lump sum withdrawals from the pension. These lump sum withdrawals will generate a debit to a client’s transfer balance account, which may provide them with the opportunity to move money into the pension phase in the future.
The downsizer contribution allows many older Australians to make additional contribution to their super when they sell their main residence, with the contribution not counting to their annual non-concessional cap.
The maximum that can be contributed is $300,000 per member of a couple, and they need to have owned their house for at least ten years and they cannot have used the downsizer contribution before.
Prior to 1 July 2022, there was also a requirement that your client was at least 65 years of age at the time of making the downsizer contribution. However, this age has now been lowered to age 60 with effect from 1 July 2022. It is worth noting that during the course of the 2022 federal election campaign, the Labor party announced that this would be further lowered to a minimum age of 55, but this has not yet been legislated.
With the lowering of the qualification age, more clients (if selling their principal residence) will have the ability to utilise the downsizer contribution to get more savings into super earlier and gain longer term benefits from investing in the tax effective environment that super offers. However, it is important to remember that you need to tell the super fund that the contribution is a downsizer contribution at the time of (or before) making the contribution. If this is not done, it will be regarded as a non-concessional contribution and assessed to the non-concessional contribution cap.
For a number of years, first home buyers have been able to access some of their super to apply towards the deposit for the purchase of their first home. Amounts that can be accessed are from voluntary contributions made in previous years since 1 July 2017, with eligible contributions each year capped at $15,000.
From 1 July 2022, the amount that can be accessed from these eligible contributions will increase from $30,000 to $50,000 per eligible individual. For a couple looking to jointly acquire a home, this could be up to $100,000 combined that can be used as a deposit. Note that only 85% of concessional contributions can be released, and the released amount will also include notional associated earnings.
If a client withdrew super under the COVID-19 early release withdrawal, they can now contribute the money back into super to rebuild their balance.
If additional personal super contributions result in an individual exceeding the non-concessional contributions cap, they may be eligible to have it treated as a 'COVID-19 re-contribution', which is excluded from the non-concessional contributions cap. However, it is important to remember that you need to tell the super fund that the contribution is a ‘COVID-19 re-contribution’ at the time of (or before) making the contribution. If this is not done, it will be regarded as a non-concessional contribution and assessed to the non-concessional contribution cap.
FOR ADVISERS USE ONLY
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