From the Tax & Super Australia Newsroom
Several superannuation proposals announced in the 2021 Federal Budget were introduced into Parliament in the Treasury Laws Amendment (Enhancing Superannuation Outcomes for Australians and Helping Australian Businesses Invest) Bill 2021. This Bill has passed both houses of Parliament without amendment and awaits Royal Assent to become law.
These measures aim to:
- Improve flexibility for Australians preparing for retirement
- Reduce costs and simplify reporting for SMSFs
- Expand the superannuation guarantee (SG) to lower-income earning individuals, and
- Support more Australians to own their first home
The Bill includes the following five superannuation related measures:
1. Repealing the work test for individuals aged 67 to 74
Individuals aged 67 to 74 will be able to make or receive non-concessional contributions (NCC) or salary sacrifice superannuation contributions without meeting the work test, subject to existing contribution caps.
Because the Bill removes the current cut off age for the bring forward rule from needing to be under age 67 to be under age 75, this means that individuals aged 74 will be able to use the two or three year bring forward rules to make a NCC to superannuation. This is good news because individuals are currently not able to make voluntary superannuation contributions beyond the age of 74, so allowing an individual who is aged 74 to bring forward two years’ worth of NCC contributions would enable them to access a contribution period for which they are not currently entitled to.
For example, an individual with a total superannuation balance of less than $1.48 million at 30 June 2022 who turns 75 in September 2022 will be able to make a NCC of $330,000 in August 2022. By doing this, they would be using their NCC caps for 2023/24 and 2024/25, which they are currently not entitled to due to their age.
Tip – if the bring forward rule is triggered prior to age 75 but not fully utilised, the individual will not be eligible to make future contributions once they turn 75. Thus, it is important for individuals to make contributions on time and before they turn age 75.
Removing the work test for individuals aged 67 to 74 will provide more flexibility for retirees under 75 to top up their superannuation without needing to work 40 hours within 30 consecutive days in a year prior to making a contribution. It will also allow older Australians to implement strategies, such as the re-contribution strategy, that are not normally available to retired individuals in this age group.
Warning – despite the removal of the work test for NCCs and salary sacrifice contributions, individuals aged 67 to 74 years wanting to make personal deductible contributions will still have to meet the existing work test.
The table below summarises the key changes, start date: 1 July 2022:
| Work test requirements if legislation is passed | ||
| 67 – 74 Current rules | 67 – 74 Proposed rules | |
| NCCs | Work test required | No work test |
| Salary sacrifice | Work test required | No work test |
| Personal deductible contributions | Work test required | Work test still required |
2. Reducing the eligibility age for downsizer contributions to 60
The eligibility age to make a downsizer contribution will be reduced from 65 to 60 years of age. All other eligibility criteria that currently apply to downsizer contributions will continue to apply.
To recap, the downsizer contribution rules allow individuals to make a one-off after-tax contribution to superannuation of up to $300,000 (or $600,000 per couple) from the proceeds of selling their home they have held for at least 10 years. Under the rules, both members of a couple can make downsizer contributions for the same home and the contributions do not count towards an individual’s NCC cap.
Reducing the eligibility age for downsizer contributions to age 60 could allow an eligible couple in their early sixties to sell their home and contribute up to $1,260,000 to superannuation in a year by each making a downsizer contribution of $300,000 and NCCs of $330,000.
Start date: 1 July 2022
3. Providing SMSFs choice to calculate exempt current pension income
SMSF trustees will be able to choose how to calculate exempt current pension income (ECPI) where the fund switches between being:
• Unsegregated (ie, having a mix of member interests in both accumulation and retirement phases at one time), and
• Segregated (ie, 100% in retirement phase at another time in an income year).
This will typically happen if a member is receiving a retirement phase income stream and another member who has been in accumulation phase also starts a retirement phase income stream part way through the income year, making the fund be 100% in retirement phase at that point in time.
Currently, the ATO holds the view that the assets of the fund will be segregated during this period (ie. when the fund is fully in retirement phase) meaning the fund may need to use both the segregated and proportionate methods for calculating ECPI for the one year.
This change will allow trustees to choose to apply the proportionate (or unsegregated) method for the whole of the income year based on a single actuary’s certificate, rather than being required to use different methods to calculate ECPI for different periods in the same income year.
However, the choice only applies if the SMSF does not have disregarded small fund assets (DSFA).
To recap, a SMSF is regarded as having DSFA where the fund:
- Pays a retirement phase pension at any time during the financial year, and
- A fund member has a total superannuation balance of $1.6 million or more on 30 June of the previous financial year, and
- The same member is receiving a retirement pension from any fund (not just the SMSF).
Points to note about making a choice:
- Trustees will be able to choose which method to use and calculate ECPI before submitting the fund’s SMSF annual return.
- This choice is not a formal election and does not have to be submitted to the ATO. However, it is expected that trustees will keep a record of any choice they make and the details of the calculation they use.
- If the trustee does not make a choice, then the current rules will apply. That is, the fund’s ECPI will be calculated using the segregated method for any period of the income year where the fund is 100% supporting retirement phase income streams and the proportionate (or actuarial certificate method) for the rest of the income year.
To summarise, an SMSF will only be able to exercise this choice if:
- All of the interests in the SMSF are in retirement phase for some, but not all of the income year, and
- All of the income derived from the SMSF’s assets is supporting retirement phase income stream benefits payable from an allocated pension, market linked pension or an account-based pension, and
- The SMSF does not have DSFA.
Start date: 1 July 2021
4. Removing the $450 per month minimum SG threshold
The $450 per month minimum SG income threshold will be repealed. As a result, employers will be required to make quarterly SG contributions on behalf of low-income employees earning less than $450 per month (unless another SG exemption applies).
Under the current rules, an employer is not required to pay SG contributions for an employee who earns less than $450 per month.
The original rationale for the $450 threshold was to:
- Minimise the administrative burden on employers administering small amounts of superannuation contributions, however technological advances and the digitalisation of payroll systems, for example Single Touch Payroll, diminishes the rationale for a minimal threshold which adversely impacts low-income workers and women
- Prevent the creation of low-balance accounts that could get eroded by fees and insurance premiums, however, recent Government changes have reduced the impact of these risks.
This measure will benefit an estimated 300,000 people or 3% of employees[1], who are mainly young and/or lower-income and part-time workers, where around 63% are female[2]. These changes will help these workers to start accumulating superannuation earlier as well as help address the gap in superannuation savings between women and men.
Start date: 1 July 2022
5. Increasing the first home super saver scheme (FHSSS) releasable amount to $50,000
Since 1 July 2017, individuals can make voluntary concessional contributions (CC) and NCCs into superannuation and have them released to help pay for their first home.
The maximum releasable amount of eligible voluntary CCs and NCCs under the FHSSS will be increased from $30,000 to $50,000.
Under the new rules, the maximum amount of voluntary contributions that are eligible to be released remains at $15,000 per financial year and $50,000 in total. The individual will also receive an amount of earnings that relate to those contributions.
Therefore an individual would need to contribute over four years to take maximum advantage of the scheme under this measure.
Start date: Requests from1 July 2022
[1] Estimates based on ATO Single Touch Payroll data for July 2019, provided to the Retirement Income Review, published in the Retirement Income Review – Final Report. Canberra: Commonwealth of Australia, 2020, pp 298, 301.
[2] Ibid, pp 45, 300-301
If you need help understanding if these changes might affect you, please contact your TSP team member and we can navigate the changes and how they might apply to your current situation. Contact us on 49 264155 or email admin@tspaccountants.com.au