Recent updates to the Federal Budget have favourably impacted contribution rules for superannuation, which come into effect from 1 July 2022, as part the implementation of the Federal Government’s superannuation reform. 

In brief the new rules are as follows: 

• The ‘work test’ has been removed from the SIS Contribution Acceptance Rules and transferred to the Tax Act, so that it operates as a precondition for tax deductibility of personal contributions rather than as a precondition for trustee acceptance of personal contributions

• Allowing the "bring forward" of non-concessional contributions in the age group 67 to 74

• Reducing the minimum age for which acceptance of downsizer contributions to age 60 (from the current age 65).

 Collectively, these changes will ensure that individuals and couples in the age group 60 to 75 will have significantly better opportunities to move capital from outside super into super. This could make a huge different to your long term retirement wealth, as funds in super (in pension phase) are not taxed and thus can provide a reliable income stream for retirees.

Further, couples in the 60-75 age group where there is a material imbalance of super capital between the two, will now have the means to even up their super balances thereby maximising their transfer balance caps.

Removal of work test from the SIS Regulations

Currently for a person to make a personal contribution in the age period 67 to 74 they must have satisfied the work test (ie having worked for 40 or more hours during a period of 30 consecutive days or less within the financial year in which the contribution is made). 

Alternatively, if they do not satisfy the work test in the current financial year but did satisfy the work test in the immediately preceding financial year and their total superannuation balance is less than $300,000 (at the end of the preceding financial year) then personal contributions can be made.  However, the alternate work test can be invoked only once.

From 1 July 2022 a person can make personal contributions irrespective of whether they satisfied the work test so long as they are aged 74 or less, which means many more Australians can now boost their super and place their assets into a more tax effective environment.

Client Example – single person

Wendy is aged 72 on 2 July 2022 but has not worked since retiring at age 65.  She has a lotto win of $300,000 receiving the proceeds on 28 June 2023.  Fortunately, as Wendy’s total superannuation balance is $500,000, she has a "bring forward" non-concessional contribution cap space of $330,000.

Before these changes, Wendy could not have contributed any portion of the $300,000 into super as she could not satisfy the work test (even if she wanted to) and could not satisfy the alternate work test (as she did not work in the immediately preceding financial year).

With these changes, Wendy could on the 28 June 2023 contribute the entire $300,000 into super.   As a result of this contribution her total superannuation balance will be $800,000.

Example - married couple

Bill, aged 68, has a super account of $1,960,000 which entirely in accumulation phase. Mary, Bill’s wife, is aged 71 and has super account of $1,000,000.  These are the only super accounts of Bill and Mary and both have not worked since they attained age 65. 

Currently, while Bill could withdraw $330,000 from super tax free and give that money to Mary, Mary could not contribute that money into super for her benefit.  There are two reasons for this.  First, a precondition for Mary making a personal contribution is that she satisfy the work test.  Mary does not satisfy the work test.  Additionally, (assuming Mary did not satisfy the work test), the most she could contribute is $110,000 as a personal non-concessional contribution given she could not apply the “bring forward” of three years’ worth of non-concessional contributions.

With these changes, Bill could still withdraw the $330,000 from super tax free, give that money to Mary and Mary can now contribute that money to her super account.  This is because the work test no longer applies.  Second, she can now apply the “bring forward” of three years’ contributions.

The end result is that Bill’s super account is now $1,630,000 and Mary’s super account is now $1,330,000.

Allowing the "bring forward" of three years’ worth of non-concessional contributions

Currently, to engage in the “bring forward” of non-concessional contributions, the member has to be aged 66 or less in the first year of the three-year period and have a "bring forward" cap space of at least $220,000. 

With the change, a member can engage the “bring forward” so long as they are 74 or less in the first year of the three-year period.  However, the requirement to have a “bring-bring” forward cap space of $220,000 or more is unchanged.

Example - “bring forward”

Eustace is aged 73 and will attain age 75 on 30 September 2023.  His total superannuation balance at 30 June 2022 is $1,580,000.  Eustace retired at age 68 and has not worked since that time.

Currently, Eustace would not be eligible to make any personal contributions to super as he cannot satisfy the work test.

With these changes, Eustace can both make personal contributions to super but also engage the “bring forward” of three years’ non-concessional contributions.  There are, however two points to note:

• First, any personal contributions should be made before 30 September 2023. Strictly, the contributions could be made up to 28 October 2023 being 28 days after the end of the month in which he attains age 75 due a grace period provided by new SIS Reg 7.04(1A).

• Second, the “bring forward” only permits bring forward of the non-concessional contributions which could be made in the financial years to which the “bring forward” relates. Consequently, Eustace can, at most, bring forward $220,000; namely $110,000 for 2022/23 and another $110,000 for 2023/24.

If Eustace’s total superannuation balance as at 30 June 2022 was $1,595,000, he could not engage the “bring forward” as his bring forward contribution cap space is Nil as he is not eligible to make more than $110,000 of non-concessional contributions for the 2022/23 financial year. 

Consequently, he cannot trigger the “bring forward” of non-concessional contributions.  Eustace in this case can still make up to $110,000 of non-concessional contribution.

If you want to learn more about how you can utilise these new rules, why not give Humble Goode Financial a call to make plans to maximise your retirement in a tax effective manner.

Source: https://www.supercentral.com.au/smsf-news/1052/new-contribution-rules-for-2022-23