Super changes you need to know about

Several key superannuation changes which may impact your ability to contribute to your self-managed super fund (SMSF), are set to take effect from 1 July 2022. These changes create opportunities for all SMSF members, young and old, to grow their retirement savings.

What are the changes?

Originally announced in the 2021 Federal Budget, the following changes apply from 1 July 2022:

• Individuals up to the age of 74, will no longer need to meet a work test to make voluntary, non-deductible, contributions
• Individuals up to the age of 75, with a total super balance under $1.7 million, will have the opportunity to make large non-concessional contributions (possibly up to three years’ worth) in a single year
• The minimum age to make downsizer contributions will reduce to 60, allowing more individuals to use the proceeds from the sale of their home, to fund their retirement
• The Superannuation Guarantee (SG) rate will increase to 10.5% a year for all and the $450 minimum income threshold for SG contributions, will be removed
• Under the First Home Super Super Scheme (FHSSS) eligible individuals will have access to an extra $20,000 of voluntary contributions to fund a home deposit.

How can you benefit from these changes?

The work test

Currently, if you are aged 67 to 74, you can only make voluntary contributions to superannuation if you have worked at least 40 hours over 30 consecutive days in the financial year, or you satisfy the recently retired test. The work test must be met prior to contributing.

From 1 July 2022, this work test will only apply to you if you wish to claim a tax deduction for the voluntary contributions you make to your SMSF. If making personal deductible contributions, from 1 July 2022, you will be able to meet the work test at any time in the financial year.

This means that the work test will no longer apply to contributions that are made under a salary sacrifice arrangement or for any personal contributions that one doesn't claim a tax deduction for, such as non-concessional contributions.

Non-concessional contribution

Currently, only those who were under the age of 67 on 1 July of the financial year can you make non-concessional contributions which exceed  the annual $110,000 non-concessional contributions cap.

The existing bring-forward rules allow people to make up to $330,000 (i.e. three years’ worth of non-concessional contributions), in a single year if their total super balance was under $1.48 million as at 30 June of the previous financial year, or $220,000 if their total super balance was greater than or equal to $1.48 million but less than $1.59 million - as at 30 June of the previous financial year.

From 1 July 2022, the cut-off age to access the bring-forward rules will increase to 75. However, the total super balance thresholds referred to above, still apply. 

This means that if those who are 74 on 1 July 2022 and have a total super balance of less than $1.48m, may be able to have one last boost to their retirement savings by making a $330,000 non-concessional contribution to your SMSF. The contribution simply must be made, no later than 28 days after the month in which you turn 75.

Downsizer contributions

Currently, you can only make a downsizer contribution if you are 65 or older at the time of the contribution and have satisfied the other eligibility requirements.

From 1 July 2022, the minimum age will reduce to 60. All other eligibility rules remain unchanged and the maximum amount of downsizer contributions that can be made remains at $300,000 per person or $600,000 per couple.

If you are selling your home and expect to receive the sale proceeds close to the end of this financial year, please contact our office to discuss the timing of a downsizer contribution and the potential to boost other contribution opportunities in 2022-23.

For example, if you get the timing right, you may be able to combine a downsizer contribution with the bring forward rules to contribute up to $630,000 to your SMSF, in one year. As a couple this could present a one-off opportunity to boost your retirement savings by $1.26m.

First Home Super Saver Scheme

Currently the First Home Super Saver Scheme (FHSSS) allows you to withdraw a maximum of $30,000 of voluntary contributions (plus associated earnings/less tax) from your super fund to fund the deposit of a new home.

From 1 July 2022, the maximum amount that can be withdrawn will increase to $50,000 meaning each eligible person will be able to withdraw an additional $20,000. All other eligibility rules remain unchanged.

Also unchanged is the maximum amount of contributions that an individual can make each year that can count towards the FHSSS – this remains at $15,000 p.a. This means that it will take a member, at least four years of voluntary contributions, to reach the higher $50,000 limit.

*Shane Ellis is the Managing Legal Practitioner Director of the Shane Ellis Legal Group including SMSF Law Equity protect. He is a Senior Consulting Lawyer specialising in SMSF estates and law, family estate planning, asset protection structuring and business structures.

He is one of few lawyers in Australia to hold SMSF Association Accredited SMSF Specialist Advisor status and ASIC RG 146 Specialist Self-Managed Superannuation Fund Accreditation. He has won Best of the Gold Coast Awards for three consecutive years for quality of legal services. He speaks regularly to business and professional groups on SMSF estate planning; asset protection and business structures and for the Queensland Law Society Magazine 'PROCTOR' on patterns for success in business.

It is important to understand the new superannuation rules and use them to benefit your retirement savings. Beyond that, the quality of your SMSF deed and estate documents are paramount. Please contact Shane Ellis Legal group to assist with SMSF documents.

Disclaimer: Please note that this information is general in nature and should not be relied upon for decision making or taken to be providing advice without you seeking expert opinion.