We’re struggling to contain our excitement; 1 July 2022 is going to see a host of changes to superannuation contribution legislation which opens a raft of amazing opportunities for our clients and Australians everywhere.
Let’s take a look.
Stop working, keep making tax-free super contributions
Currently, the Work Test requires any Australian aged between 67 and 74 (inclusive) to have at least 40 hours of gainful employment in a 30-day period at least once in a financial year in order to make super contributions.
From I July 2022, Superannuation Work test changes mean that people between 67 and 74 can:
- Make personal, non-concessional contributions
- Make salary sacrifice contributions
Essentially, you no longer have to work in order to make tax-free super contributions. Unfortunately, the Work Test still applies to any 67 to 74 year old looking to make a tax-deductible contribution.
Taxable money out, tax-free money in
This change to the Work Test rule opens up a number of opportunities, not least of which is the withdrawal and recontribution strategy. This involves withdrawing a lump sum from the taxable component of your super, paying any necessary taxes on it and then re-contributing it back into your super, tax free.
This is particularly useful for those who may not have any funds outside of super to contribute in any given financial year. It’s also a useful strategy for those with non-tax dependents, such as adult children. By converting more of your super from taxable to tax free, you are effectively reducing the amount of death benefit tax they pay upon receiving a lump sum from your super account.
Instead of paying the 17% tax (15% death benefit tax plus 2% Medicare levy), your adult children will be looking at a 0% tax bill. This is a brilliant method of recycling your money and ensuring more of it goes to your kids and less to the government.
Downsize earlier and contribute outside the super cap
A change to the downsizer contribution rules has already been taken advantage of by over 22,000 Australians. This tax break means that you can sell your house and put some of the proceeds (up to $300,000 per person) into super without it contributing to any caps. The house must be your primary residence or have been at some stage in the previous ten years.
This tax break was previously only available to those aged 65 and up, but the eligibility age has been brought down to 60. This is a fantastic opportunity for those who want to put some extra money into super or have some dreams they want to see realised. It’s also worth noting that the name –downsizer contribution – can be misleading. You don’t actually have to downsize after selling your primary residence; in fact, some people move into a bigger house! What you do with the money you get from this tax break is entirely up to you.
Get a larger tax deduction in the years you need it
In some years, we need a bigger tax deduction than usual, especially if we happen to sell an investment property. If you’re in this situation, have a chat with your adviser about contribution reserving.
Concessional contributions to super are capped at $27,500 per financial year. However, with contribution reserving, you can make two contributions of $27,500 and claim a tax deduction on the entire $55,000 in that financial year.
The only caveat is that you can’t make any concessional contributions in the following year.
It’s complex – so seek financial advice
There are some amazing opportunities coming for those aged under 75 but – as with anything in the financial world – these opportunities can be complex. If certain strategies aren’t implemented in the appropriate manner, what would have been a tax break can instead result in a tax bill.
Changes to how Centrelink assess allocated pensions has meant you have to be careful with how you move your money around. For instance, you don’t want to move your existing pension to start a new one through these contributions because you could be adversely affected.
As always, seek financial advice before taking advantage of any rule changes as these are quite complex issues and can be daunting if you don’t work within the financial world.