Budget Update – Superannuation

Superannuation

Last night the government announced various positive changes to the superannuation regime in attempt to encourage people to save for their retirement. These include:

Scrapping of work test requirements for those age 67 and 74

If passed by parliament, from 1 July 2022 people aged 67 and 74 will be able to contribute to superannuation without satisfying the work test requirements. This means that those under 75 year of age will be able to make voluntary non-concessional contributions and salary sacrificed contributions. However, these measures are not expected to expand to allow the ability to make deductible personal contributions for those over age 67 and therefore will still have to meet the work test.

Under the current rules, those aged between 67 and 74 years can only contribute either concessional or non-concessional if they work at least 40 hours in any 30-day period in the financial year in which the contributions are made (the “work test”). The work test age limits increased from age 65 to 67 during the 2019/20 Budget.

The government is also yet to pass legislation to allow those under 75 year to access the bring forward rules which allow an annual non concessional contribution of 3 times the annual non-concessional caps.

Age for downsizer scheme reduced to age 60

It is proposed that age limit to make contributions using the downsizer scheme be reduced for age 65 to 60.

This means that those aged 60 or over can make an additional non-concessional contribution of up to $300,000 from the proceeds of selling their home. The following conditions must apply:

• Either the individual or their spouse must have owned the home for 10 years.
• The maximum downsizer contribution is $300,000 per contributor (ie $600,000 for a couple)
• Contribution must come from the capital proceeds of the sale price.
• Must be made within 90 days after sale settlement
• Don’t count towards non-concessional contributions caps and are exempt from the contribution rules, ie work test.
• No limit to those with total superannuation balances above $1.6m ($1.7m for 2021-22). However, contributions will count towards the $1.7m transfer balance cap.

First Home Super Saver Scheme extended for withdrawals up to $50,000

The government increased the threshold for withdrawals made under the First Home Super Scheme from $30,000 to $50,000.

The scheme initially brought in from 1 July 2017 allowed first homebuyers to make annual voluntary contributions of up to $15,000 to their superannuation to save for their first home. Upon approval by the ATO the withdrawal of these contributions can then go towards the purchase of the individuals first home. This withdrawal has increased from $30,000 to $50,000. There may tax consequences associated with the withdrawals so it pays to get the right advice.

Removal of superannuation guarantee $450 minimum monthly earnings threshold

From 1 July 2022, minimum earnings base superannuation guarantee will be abolished. Under the current rules earnings of less than $450 per month are not subject to superannuation guarantee.

Be mindful that the superannuation guarantee rate will increase from 9.5% to 10% from 1 July 2021 and employers cannot use an employee’s salary sacrificed contributions to reduce the employer’s extra 0.5% of super guarantee. The ordinary time earnings (OTE) base for super guarantee includes sacrificed OTE amounts. This includes contributions made on behalf of an employee under a salary sacrifice arrangement.

High-income earners with multiple employers can opt-out of the superannuation regime in respect of an employer to avoid exceeding the concessional contributions cap. The opt-out superannuation guarantee income threshold for high income earners will increase to $275,000 from 1 July 2021.

Relaxing residency requirements for Self-Managed Superannuation Funds (SMSF)

There are certain requirements for a SMSF to maintain residency, which include:

• Establishment in Australia
• Central management and control ordinarily undertaken in Australian, and
• At least 50% of the members being in Australia (measured by portion of member balance)

Failure to satisfy these requirements will result in loss of the concessional tax rates of 15%.

The government does allow trustees to be temporarily outside Australia. Under the budget announcements, this period will expanded from a two-year period to 5 years.

The proposed changes to the residency requirements will allow members to contribute to their superannuation fund whilst temporarily overseas for a greater period of time..

We urge you to consult with your Plant and Associates Accountant before implementing any of the above as the rules are complex.

Please be on the lookout for further newsletters for information on the progress of the above proposed legislative changes.