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Super Changes Coming!
28 February 2022

Written by Michal Park

Does anyone remember all the superannuation promises declared in the Federal Budget announcements in May last year?  It feels like a lifetime ago, particularly when considering all the other events that have transpired between then and now.

Well, Hudson financial planners got very excited by the proposals, and today I am here to tell you that the Bill implementing the majority of the super changes has passed both houses of Parliament and now only awaits royal assent!  This is terrific news for many individuals – both the younger generation and those more mature amongst us – as it reduces restrictions when making contributions to super.

Let’s have a look at the proposals in detail and who they might benefit:

  1. Repealing the work test for super contributions

Proposed effective date: 1 July 2022

Currently, a member aged 67 to 74 must satisfy a work test (or qualify for a work test exemption) to make voluntary super contributions (excluding downsizer contributions).

The Government proposed, in the May 2021 Federal Budget, removing the work test (or work test exemption) requirement for non-concessional contributions and salary sacrifice contributions from 1 July 2022. As the work test requirements are located in the SIS Regulations the Government will need to make amending regulations to implement this change.

 However, from 1 July 2022, the work test (or work test exemption) will still apply to personal tax-deductible contributions where a member is aged 67 to 74. The Bill inserts a tax law requirement that, where a member wishes to claim a tax-deduction for a personal super contribution made while aged 67 to 74, they must have:

  • satisfied the work test (40 hours of gainful employment in a period of 30 consecutive days or less) during the income year of the contribution, or
  • satisfied the work test exemption for the income year of the contribution.

An example of how this might benefit someone aged between 67 and 74 is as follows, using a recontribution strategy:  Jane is 69 and retired. She has $500k in a Pension account, almost all of it taxable component. She has two adult daughters and has named them as beneficiaries on the account. If the legislation didn’t pass, her girls were up for approximately $70,000 of tax in the event of her death (being non-financial dependents). Assuming the legislation passes, Jane can work with her adviser to action the following strategy: Next financial year, withdraw $110,000 and re-contribute back into Super and then roll this amount into a second pension account. The following financial year, withdraw another $110,000 from the original Pension account and recontribute back to Super, consolidating with the second pension we set up the year before into a new Pension account. This can be repeated the following year and the following year until the original pension account is depleted. The new pension account, given it will be made up from nothing but non-concessional contributions will have 100% tax-free component and her daughters will not pay any tax in the event of her death.

  1. Increasing access to the bring forward rule

Proposed effective date: 1 July 2022

Currently, a member must be under age 67 at the start of a financial year in order to trigger the non-concessional contributions cap bring-forward rule in that year.

From 1 July 2022, the maximum age for the bring-forward rule will increase so that a member can trigger the bring-forward rule in a financial year where they are under age 75 at the start of the year.

There is no change to the existing total superannuation balance requirements that limit or remove a member’s access to the bring-forward rule.

An example of how this might benefit someone aged between 67 and 74 is as follows:  Jane and John are 67 and 69 respectively.  The sell their principle residence but have not met the eligibility requirements to contribute to superannuation under the downsizer cap.  With the maximum age for the bring forward rule increasing to 75, this means that Jane and John can contribute a lump sum of $330K each into their superannuation, and then convert it to a tax free pension environment.

  1. Extending access to downsizer contributions

Proposed effective date: 1 July 2022

From 1 July 2022, the minimum age to make a downsizer contribution (measured at the time of contribution) will reduce from 65 to 60.

This will allow some members aged 60 to 74 to potentially contribute $630,000 (or $1.26 million combined in the case of a couple) at one time by combining a downsizer contribution (from the proceeds of selling their homes) with the three-year non-concessional contributions bring-forward rule.

Other eligibility rules for downsizer contributions will remain unchanged.

An example of how this may benefit someone aged between 60 and 74 is as follows:  Let’s take Jane and John above.  The sell their principle residence but HAVE met the eligibility requirements to contribute to superannuation under the downsizer cap.  With the maximum age for the bring forward rule increasing to 75, this means that Jane and John can contribute a lump sum of $300K each via the downsizer rule + and additional $330K each into their superannuation (a total of $1.26mill), and then convert it to a tax free pension environment.  This assumes they have the cap space to make these contributions.

  1. Abolishing the $450 per month income threshold for the Superannuation Guarantee (SG)

Proposed effective date: 1 July 2022

Currently, where an employee earns less than $450 in a calendar month, their employer is not required to pay superannuation guarantee (SG) on those earnings.

For SG quarters commencing 1 July 2022, this minimum SG threshold will be abolished and an employer will be required to pay SG on earnings less than $450 in a calendar month.

The SG rate is increasing gradually from 10% to 12% by 2025.

An example of how this may benefit someone include any individuals in lower paying or part time employment.  Having no threshold for employer superannuation contributions means that these individuals will be able to see their retirement benefits growing from day dot.





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