Superannuation change is coming: What it means to you Loading 3rd party ad content Loading 3rd party ad content Loading 3rd party ad content Loading 3rd party ad content

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The superannuation landscape is changing dramatically on July 1, when a raft of reforms come into effect that open a door to some worthwhile new retirement strategies.

The changes include the removal of the work test for non-concessional super contributions for people aged 67-75, and an extension of eligibility for individuals under 75 at the beginning of the financial year to make non–concessional contributions using the bring-forward rules. Eligibility to make downsizer contributions has also been extended to those aged 60 and over.

Credit:Simon Letch

The work test will no longer need to be met by individuals aged 67-75 when making salary-sacrificed and personal non-concessional contributions. However, the 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 a total super balance (TSB) reaches $1.7 million. Concessional contributions can be made irrespective of the TSB, and there is a contribution cap of $27,500 a year from all sources, including compulsory super.

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 the previous July 1, and they meet the eligibility criteria that relate to a total super balance, the bring-forward rule may be triggered. This could enable a person to put up to an additional $330,000 into their super, provided the 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 cannot trigger the bring-forward rule in July the following financial year.

The ability to withdraw money from super and re-contribute it as a non-concessional contribution can be a useful tool in reducing the tax paid on super death benefit lump sums bequeathed to non-dependent adult children, as it could convert a portion of the taxable component to the tax-free component. Furthermore, if there is a substantial imbalance in the super balances of a couple, one partner could withdraw, say, $330,000 and contribute it to their partner’s super, as long as the partner’s super does not exceed $1.7 million.

The ability to make a downsizer contribution at age 60 has significant benefits. It could enable people with high super balances to put another $300,000 each into their super because the $1.7 million limit on non-concessional contributions does not apply to the downsizer contribution. It would also assist people to maximise the amount they can have in super from the sale of their home.

Hypothetically, a couple could make contributions of $630,000 each from the proceeds of a property sale. The first contribution would be $330,000 using the bring-forward rules, the second would be the downsizer contribution of $300,000. This is where seeking financial advice is important because the terms of sale may have to be tailored to maximise the contributions that can be made.

Keep in mind that tax-deductible concessional contributions can be used to reduce capital gains tax (CGT) in some cases. This would be particularly relevant if a person has less than $500,000 in super at the end of the previous financial year, and has not been making concessional contributions because they have been out of the workforce for several years. Possibly, as much as $100,000 could be contributed to super using the catch-up concessional contribution strategy. This could eliminate CGT on sale of an asset.

Given that money in super is not assessed by Centrelink until the holder reaches pensionable age, or starts an income from their super fund, the ability to contribute large chunks of money to super could be highly effective if there is an age difference between the members of a couple. By holding the super in the younger person’s name, the older person may qualify for a part age pension.

  • Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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