Legislation has finally been passed to give effect to several of the key superannuation changes proposed in the 2021 federal budget.
This is great news for retirees, and people approaching retirement, as they open the door to some worthwhile strategies.
The changes include the removal of the work test requirement for non-concessional contributions for people aged between 67 and 75, and the extension of eligibility for individuals under 75 at the beginning of the financial year to make non-concessional contributions using the bring forward rules.
Furthermore, eligibility to make downsizer contributions has been extended to those aged 60 and over.
The work test will no longer need to be met by individuals aged between 67 and 75 when making salary sacrificed contributions and personal non-concessional contributions. However, the work test will still need to be met to claim a tax deduction for personal concessional contributions.
Apart from the downsizing contribution, no non-concessional contributions may be made once total superannuation balance reaches $1.7 million.
Concessional contributions can be made irrespective of the total superannuation balance, and there is a contribution cap of $27,500 a year - this includes superannuation from all sources including the employer contribution.
There will be no tapering of the bring-forward rule for those approaching 75. This means that if a person's age is less than 75 on July 1 and they meet the ordinary eligibility criteria including that which relates to the total superannuation balance, the bring forward rule may be triggered.
This could enable a person to put up to an additional $330,000 into their superannuation provided the bring forward rule has not been used in the previous three years. Contributions will need to be received no later than 28 days after the month the person turns 75.
However, if a person turns 75 in June, they will not be permitted to trigger the bring forward rule in July the following financial year. In short, the individual must be 74 or under at some time during the financial year to be able to use the bring forward rule.
The ability to withdraw money from superannuation and then re-contribute it as a non-concessional contribution can be a useful tool in reducing the death tax (ie tax paid on death benefit lump sums received by non-dependent adult children), as it could convert a substantial portion of the taxable component to the tax-free component.
Furthermore, if there was a substantial imbalance in the superannuation balances of a couple, one partner could withdraw say $330,000 and contribute it to their partner's superannuation as long as the partner's super is not in excess of $1.7 million.
The ability to make downsizer contribution at age 60 has significant benefits in certain cases. For starters, it would enable people with high superannuation balances to put another $300,000 each of the super because the $1.7 million limit on non-concessional contributions does not apply to the downsizer contribution.
Keep in mind that tax-deductible concessional contributions can be used to reduce capital gains tax in some cases.
This would be particularly relevant if the person had less than $500,000 in super at the end of the previous financial year, and had not been making concessional contributions because they had been out of the workforce for several years. Possibly as much as $100,000 could be contributed to superannuation using the catch up concessional contribution strategy. This could eliminate CGT on sale of an asset.
Given that money in superannuation is not assessed by Centrelink until the holder reaches pensionable age, or starts an income from their superannuation, the ability to contribute large chunks of money to superannuation may be highly effective if there was an age difference between the members of a couple. By holding the superannuation in the younger person's name the older person may qualify for a part pension.
This is just overview of the opportunities available - expert advice should always be taken.
Noel Whittaker is the author of Retirement Made Simple and numerous other books on personal finance. noel@noelwhittaker.com.au
