Superannuation Changes

As the start of the financial year is upon us, now is a good time to check your super and see what you could do to boost your retirement nest egg. What’s more, you could potentially reduce your tax bill at the same time.

There are a handful of positive changes to super that started 1 July 2022.

Changes from 1 July 2022

Among the changes from 1 July, the superannuation guarantee (SG) will rise from the current 10 per cent to 10.5 per cent for all employees.  The $450 monthly threshold has been removed so SGC will apply to all employees regardless of their earnings.

Another change from 1 July 2022 is the abolition of the work test for retirees aged 67 to 74 who wish to make non-concessional (after tax) contributions into their super. This will allow eligible older Australians to top up their super using personal non-deductible superannuation contributions even if they are fully retired. Previously you needed to satisfy the work test or work test exemption. This meant working at least 40 hours during a consecutive 30-day period in the year in which the contribution is made.  This is now no longer required to be satisfied.  However, note that in order to make deductible contributions, the work test still needs to be satisfied.

Also on the plus side, is the expansion of the downsizer contribution scheme. From 1 July the age to qualify for the scheme will be lowered from 65 to 60, although other details of the scheme will be unchanged. If you sell your home that you have owned for at least 10 years to downsize, you may be eligible to make a one-off contribution of up to $300,000 to your super (up to $600,000 for couples). This is in addition to the usual contribution caps.

Maximum Superannuation contributions for 2022/23

For those who have surplus cash languishing in a bank account or who may have come into a windfall, consider taking full advantage of your super contribution caps.

The annual concessional (tax deductible) cap is $27,500. This includes your employer’s SG contributions, any salary sacrifice contributions you have made during the year and personal contributions for which you plan to claim a tax deduction.

Claiming a tax deduction is generally most effective if your marginal tax rate is greater than the 15 per cent tax rate that applies to super contributions. It is also handy if you have made a capital gain on the sale of an investment asset outside super as the tax deduction can offset any capital gains liability.

Even if you have reached your annual concessional contributions limit, you may be able to carry forward any unused cap amounts from previous years if your super balance is less than $500,000.  We can advise you if you are eligible for this ‘”Catch Up” arrangement and how much you can contribute for a tax deduction.

Once you have used up your concessional contributions cap, you can still make after-tax non-concessional contributions. The annual limit for these contributions is $110,000 but you can potentially contribute up to $330,000 using the bring-forward rule. The rules can be complex, especially if you already have a relatively high super balance, so it’s best to seek advice.

Government and spouse contributions

Lower income earners also have incentives to put more into super. The government’s co-contribution scheme is aimed at low to middle income earners who earn at least 10 per cent of their income from employment or business.

If your income is less than $42,016 a year, the government will contribute 50c for every after-tax dollar you squirrel away in super up to a maximum co-contribution of $500. Where else can you get a 50 per cent immediate return on an investment? If you earn between $42,016 and $57,016 you can still benefit but the co-contribution is progressively reduced.

There are also incentives for couples where one is on a much lower income to even the super playing field. If you earn significantly more than your partner, ask us about splitting some of your previous super contributions with them.

Also, if your spouse (or de facto partner) earns less than $37,000 a year, you may be eligible to contribute up to $3000 to their super and claim an 18 per cent tax offset worth up to $540. If they earn between $37,000 and $40,000 you may still benefit but the tax offset is progressively reduced.

If you would like to discuss your super options, feel free to call us.

Source: ATO