Opportunities Await...
Opportunities Await
As 30 June fast approaches, the focus usually shift towards ensuring strategies relating to managing taxation outcomes and superannuation are implemented before the end of financial year arrives.
However, it is also important to look ahead, with some superannuation contribution rules changing from 1 July 2022. These changes could create a great opportunity to revisit your savings and super contribution strategies, enhancing your options to build your wealth.
Whether you’re thinking about retirement, have already retired, or even looking to purchase your first home, there is likely to be value in reviewing your circumstances and having a discussion with a financial adviser about how these super changes could benefit you.
Why super?
Super, for most of us, is a concessionally taxed investment. This means that returns on your super investments are generally taxed at a rate that is less than your marginal tax rate. Earnings are taxed at up to 15% in accumulation phase or 0% in retirement phase. This can make it a great option to boost your savings.
The key changes relate to the eligibility requirements to make personal (after-tax contributions), the contribution limits that apply once you’ve turned 67, as well as how much you can access from voluntary super savings to help purchase a first home. Also, the changes mean that lower income earners may become eligible for employer contributions on income earned.
The key changes from 1 July 2022 include:
increasing the amount of personal contributions that can be made to superannuation by people aged 67 to 74*
removing the requirement of a work test for certain types of contributions, to contribute to super for those 67 to 74*, and
reducing the age of eligibility to make a downsizer contribution from 65 to 60.
* Contributions must be received no later than 28 days after the month in which the person turns age 75.
While some of these changes will provide great opportunities from 1 July 2022, they could also impact end of year strategies you were planning on implementing.
These opportunities have a range of eligibility requirements so contact your Newcastle & Lake Macquarie Financial Planning Advisers to discuss how these changes impact your circumstances and opportunities that may exist for you.
New & Expanded Contribution Opportunities
Individuals aged 67-74 will have greater opportunity to contribute to super with the following changes:
• the removal of the work test for personal (after-tax) contributions2 and salary sacrifice contributions, and
• an increase to the amount of after-tax contributions that may be made within a single financial year.
Currently, the work test requires you to undertake work for at least 40 hours in a consecutive 30 day period in the financial year a super contribution is made. Alternatively, you may be eligible to apply the work test exemption.
This requirement is removed from 1 July 2022 for individuals aged 67-741 if making personal after tax2 contributions and salary sacrifice contributions. The removal of the work test may make it easier for you to make contributions.
It is important to note that the work test (or work test exemption) still applies if you make a personal contribution and wish to claim a tax deduction.
Other eligibility requirements to make contributions continue to apply, such as total super balance limits and contribution caps. See ato.gov.au for more information.
Caps apply to limit the total contributions that you can make to super. The current annual non-concessional contributions (NCC) cap is $110,0003. NCCs include:
• personal contributions for which you don’t claim a tax deduction
• spouse contributions, and
• certain amounts you may transfer from an overseas super fund.
If you meet certain requirements, you may be eligible to ‘bring-forward’ NCCs from future financial years, to make even larger contributions. This is known as the ‘bring-forward rule’. If you’re eligible, you may be able to contribute up to $330,000 either in a single financial year, or over a three year period.
Currently, you need to be less than 67 on 1 July of a financial year to be eligible to use the bring-forward rule. From 1 July 2022, you may be able to access the bring-forward rule if you’re aged less than 75 on the prior 1 July. Other eligibility rules will continue to apply, such as the total super balance limits.
The following table summaries the maximum NCCs that can be contributed in 2022/23 based on your total super balance as at 30 June 2022:
The concessional contribution caps are complex, so please seek professional financial planning advice.
Downsizer contributions allow eligible individuals to contribute some or all of the proceeds of the sale of their home, without impacting other contribution caps. Unlike NCCs, downsizer contributions do not have a total super balance limit, or an upper age limit. This means it could be a great, final way to boost super for those that don’t meet eligibility rules to contribute or where the NCC cap has been earmarked for other purposes.
From 1 July 2022, the eligibility age is reducing from 65 to 60. The age reduction increases the number of individuals who may be eligible to make a downsizer contribution and boost their retirement savings.
Provided certain other conditions are met, it may be possible to contribute up to $300,000 per person (or $600,000 per couple) from the proceeds of selling your home. Downsizer contributions will not count towards your concessional or non concessional contributions caps.
You will need to make the contribution within 90 days of settlement of your sale, and you need to complete the required forms to notify your super fund that you are making a downsizer contribution, no later than the time you made the contribution.
As the Federal Government continues to change the rules, eligibility criteria and contribution thresholds, we highly recommend you speak to your Newcastle & Lake Macquarie Financial Planning Advisers to explore your opportunities and develop a blueprint that will enable you to retire on your terms.