Superannuation update: year end planning (June 2022)
The end of the financial year is once again upon us. With volatile asset markets, contribution changes for retirees and a new Federal government, many superannuants will be watching their balances closely. Now is the time for everyone, retirees in particular, to switch their attention towards superannuation planning, including a review of strategies for contributions and pension planning. The change to the contributions landscape for 2023 allows for retirees to add additional amounts to their superannuation balances via non-concessional and downsizer contributions. Understanding the current contribution and pension limits will help in formulating appropriate strategies. Below we summarise just a few of these areas of consideration.
Annual contribution limits
With indexation applied to concessional and non-concessional contributions from 1 July 2021, there are no further changes to the limits from 1 July 2022, noted in the table below.
| Concessional contributions | Non-concesisonal contributions |
|---|---|
| 30 June 2022 and 30 June 2023 | 30 June 2022 and 30 June 2023 |
| $27,500 per annum | $110,000 per annum - for individuals with a total superannuation balance of less than $1.7m at the previous 30 June $nil - for anyone with a total superannuation balance of $1.7m or more at the previous 30 June |
| The above limits are available to all members under the age of 67. If you are aged 67 or over, the work test rules still apply to voluntary and salary sacrifice concessional contributions and non-concessional contributions from 1 July 2022 noted in further detail below. | |
| Unused carry-forward concessional contributions – available for individuals with a total superannuation balance of less than $500,000 at the previous 30 June | Bring forward non-concessional contributions - available for individuals aged under 67 up to a maximum of $330,000 depending on the individual’s total superannuation balance at the previous 30 June (Bring forward amount reduced if balance is between $1.48m and $1.7m) |
Unused carry-forward concessions are available to all members under the age of 67. If you are aged 67 or over, the work test rules still apply in full to the end of the financial year. |
Bring forward concessions are currently only available to members under the age of 67. If you are aged 67 or over, the work test rules apply. |
| From 1 July 2022, detailed below, the work test will no longer apply to individuals wishing to make a salary sacrifice concessional contribution. | From 1 July 2022, detailed below, the work test will no longer apply to individuals wishing to make a non-concessional contribution. |
Changes from the 2021 Federal Budget coming into effect from 1 July 2022
In each of the topics we’ve summarised below, further details can be found in our Federal Budget update paper released earlier this year in relation to announcements that have been enacted from the 2021 Federal Budget.
There were a number of measures introduced in the 2021 Federal Budget which have not yet passed Parliament and may be subject to change with the new Government. These include the relaxation of the SMSF residency requirements and the two year amnesty period for legacy pensions. We have not revisited these measures in this update as Labor’s first budget proposals are expected to be released in the December Mid-Year update.
Superannuation Guarantee changes
From 1 July 2022, the scope of superannuation guarantee (SG) payments will be broadened to now include employees receiving salary or wages of less than $450 a month.
An important reminder as we approach 30 June 2022 is for employers to make sure their single touch payroll (STP) software is updated to account for this change in order to ensure all SG contributions are calculated and paid correctly. It is equally important to ensure the quarterly super payment due dates are met.
| Financial Year | Quarter | Period | Payment due date / estimated due date to be received by the fund |
|---|---|---|---|
| 2022 | 4 | 1 April 2022 - 30 June 2022 | 28 July 2022 |
| 2023 | 1 | 1 July 2022 – 30 September 2022 | 28 October 2022 |
| 2 | 1 October 2022 – 31 December 2022 | 30 January 2023 | |
| 3 | 1 January 2023 – 31 March 2023 | 28 April 2023 | |
| 4 | 1 April 2023 – 30 June 2023 | 28 July 2023 |
From 1 July 2022, the prescribed superannuation guarantee (SG) rate is scheduled to increase from the current 10% to 10.5%. This increase will require employers to contribute into superannuation, an additional 0.5% of an employee’s ordinary times earnings, in order to satisfy their SG obligations under the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGAA).
It is important for employers to start planning now as to how this change will impact their current processes and how this increase will be communicated to employees. Consideration should also be given to an employee's remuneration structure, as the impact will differ depending on the employment contracts.
Access to First Home Super Saver Scheme
From 1 July 2022, the amount an individual (on a per person basis) can withdraw from their superannuation fund under the First Home Super Saver Scheme (FHSSS), has increased from $30,000 to $50,000. First home savers who make voluntary concessional and/or non-concessional contributions of up to $15,000 per year into a superannuation fund, are able to withdraw those contributions limits, as well as the associated earning for the purposes of purchasing their first home under the FHSSS.
Superannuation downsizer scheme
From 1 July 2022, subject to meeting the eligibility criteria, the age that an individual can make downsizer contributions (contributions made by utilising the proceeds on sale (or part sale) of a members’ principal residence) in addition to their annual concessional and non-concessional contribution caps has been lowered from 65 to 60 years of age.
It is important to remember, before making a downsizer contribution, that by lowering the eligibility age, individuals making contributions could now be faced with a situation where they will be limited in the ability to access these funds. An individual must still have met a condition of release in order to enable them to withdraw these benefits, if needed. If they are still employed in the workforce, this cashing restriction might not be until they reach the age of 65.
Changes to the Work test
From 1 July 2022, retirees between 67 to 74 years of age will be eligible to make contributions into superannuation as a result of the abolishment of the “work test” that currently applies when making non-concessional and salary sacrificed concessional contributions.
This does not apply to those individuals wanting to make concessional contributions by claiming a personal tax deduction. In these instances, individuals will still be required to meet the “work test” from 67 years of age. As a reminder, the “work test” requires an individual to work (for gain or reward) for at least 40 hours in a 30 day consecutive period.
Contribution Strategies prior to 30 June 2022
With proper planning prior to 30 June 2022, a number of strategies may now be available to allow individuals the opportunity to maximise the amount contributed into superannuation and this is especially important for those individuals nearing the age limits or total superannuation balances cut off limits. These strategies could include how excess concessional contributions are managed, the use of re-contribution strategies, or even the potential for a 74 year old member to maximise their non-concessional contributions of up to $330,000 via the three bring-forward arrangements, where the appropriate conditions are satisfied.
Double Deduction Strategy
Individuals with high taxable income in the 2021-2022 financial year may consider bringing forward their 2023 concessional contributions prior to 30 June 2022. This strategy is particularly valuable if your high assessable income comes from a one off event such as a capital gain or performance bonus.
Under this arrangement, personal contributions are made to an SMSF up to the concessional contribution cap any time during the year (say 2021-2022) with an additional contribution that can be made sometime in June 2022 but not allocated to the member until July 2022. This reserving strategy highlights the added flexibility SMSFs have in being their own trustees, allowing for the strategic allocation of contributions to financial years.
A personal tax deduction is claimed for two years’ worth of contributions in a single year as both contributions were made in the financial same year in respect of the relevant individual, but count towards the relevant cap in the different years.
If the strategy is adopted, this would allow for a contribution of up to $55,000 for the 2022 financial year, after taking into account the new higher cap from 1 July 2021.
Unused concessional contributions
As noted in the table above, members of superannuation funds can make additional catch-up contributions using unused concessional contributions carried forward from 1 July 2018. This provision provides a tax planning opportunity for family groups which can distribute income to individuals, such as children over 18, who have unused concessional contribution caps.
For example, if a child has turned 18 before the end of the current financial year, there is the ability for them to make a personal concessional contribution prior to 30 June 2022 of up to $102,500 against their taxable income (or $130,000 if they utilise the double deduction strategy noted above). This contribution can then be claimed against taxable income including trust distributions.
It is important to factor in any superannuation guarantee payments made to a members’ accounts since 1 July 2018 as this may reduce the top up of personal contributions. This will allow the respective individual to enjoy the benefits of their superannuation balance compounding at concessional tax rate. Further, these contributions will be eligible to be withdrawn as part of the first home super savers scheme.
Maximising Non-Concessional Contributions
As mentioned in the table above, members that have a total superannuation balance of more than $1.7 million at 30 June of a financial year are unable to make any further non-concessional contributions. This superannuation balance is tested at the beginning of the financial year.
Member’s with balances below $1.7m but aged between 67 and 75, will find that they can continue to make non-concessional contributions, without working, for longer than they had previously expected. These contributions can be funded from member’s personal savings or pension and lump sum superannuation withdrawals. This also allows re-contribution strategies well into retirement years which can provide tax savings for the beneficiaries of superannuation death benefits. This strategy will be available to members from 1 July 2022.
Other Year End Matters
Minimum pension requirements
As noted in our 2021 superannuation year end planning publication, the second COVID-19 economic response stimulus package saw the Government announce a relief measure to support superannuation retirees. This included a reduction in the superannuation minimum income stream drawdown requirements for account-based income streams, market linked income streams and similar products by 50% for the years ended 30 June 2020 and 30 June 2021.
A second extension to this measure has been confirmed by the Government to the minimum drawdowns for the years ended 30 June 2022 and 30 June 2023.
Additionally, where you have a lump sum withdrawal arrangement currently in place, now is the time to review and implement any additional documentation instructing the trustee how you wish to receive your benefits prior to 30 June 2022 for the upcoming 2023 financial year.
Safe harbour interest rate rises for related-party loans
SMSFs relying on the safe harbour terms set by the ATO in PCG 2016/5 for their related-party limited recourse borrowing arrangements will have an increase in the interest rate to 5.35% from 1 July 2022.
The interest rate is based on the Reserve Bank of Australia Indicator Lending Rates for banks and trustees will need to ensure this adjustment is made from 1 July 2022.
