Federal Budget 2021-2022: New superannuation measures announced and how they might affect you

By Cutcher & Neale Accounting and Financial Services - September 14, 2021

This year’s federal budget had a strong emphasis on job growth, but it also announced a raft of significant measures around superannuation. It is important to note that these measures are just proposals at the moment and could change as the legislation passes through parliament.

Proposed effective date 1 July 2022:

1. Repealing the work test for voluntary super contributions

Under this proposal, individuals aged 67 to 74 will be able to make non-concessional contributions (including under the bring forward rule) or salary sacrificed contributions to super without meeting a work test, subject to existing contribution caps. The work test will still need to be met by those who wish to claim a tax deduction for personal deductible contributions made to super.

Currently, individuals who are 67 years or older can only make voluntary contributions, or receive contributions from their spouse, if they meet a work test or have a work test exemption (subject to limited exemptions).

Abolishing the work test requirement will simplify the rules around making super contributions and make it more flexible for older Australians. It will provide further opportunities to re-balance super accounts between spouses for transfer balance cap purposes or to implement benefit recycling strategies for estate planning purposes.

2. Reducing the eligibility age for downsizer contributions

The downsizer contribution allows individuals aged 65 or over to make a one-off contribution to super of up to $300,000 per person (or $600,000 per couple) from the proceeds of selling their home. Contributions do not count towards non-concessional contribution caps and are not restricted by the usual age/work test restrictions.

Under this proposal, the eligibility age to make downsizer contributions will be reduced from 65 to 60 years of age. All other eligibility criteria will remain unchanged.

Utilising the downsizer contribution rules and triggering the 3 year bring forward rule for non-concessional contributions would allow an eligible individual to contribute up to $630,000 into super in one year.

3. Removing the $450 per month threshold for superannuation guarantee eligibility

Currently, employers do not need to pay Superannuation Guarantee for employees who earn less than $450 per month. Under this proposal, employees who earn less than $450 per month will be paid super guarantee by their employer if they satisfy other eligibility requirements. This change should help simplify the rules for employers and provide a degree of fairness and equality to low-income employees in the superannuation system. The SG rate also increased from 9.5% to 10% effective from 1 July 2021 and will gradually increase to 12% by 2025.

4. Increasing the amount that can be withdrawn under the First Home Super Saver Scheme

The First Home Super Saver Scheme (FHSSS) allows first home buyers to make voluntary contributions of up to $15,000 per year into super and then withdraw those contributions plus an amount of associated earnings for the purpose of purchasing their first home. Currently, a maximum of $15,000 of voluntary contributions from any one financial year can be included in the eligible contributions to be released under the FHSS scheme, up to a total of $30,000 contributions across all years.

Under the proposed changes the FHSSS will be expanded to increase the maximum amount of voluntary contributions that can be released under the scheme to $50,000.

Utilising the FHSSS can help shorten the time it takes for first home buyers to get a deposit together, by allowing them to invest amounts in superannuation, where the tax rate on concessional contributions is just 15%. The higher the individual’s marginal tax rates, the better the benefits.

5. Relaxing the residency requirements for SMSFs and SAFs

Under this proposal, the residency requirements for SMSFs will be relaxed by extending the central control and management test safe harbour from two to five years and removing the active member test. Removing the active member test will allow SMSF members to continue to contribute to their super fund whilst they are temporarily overseas.

These changes can be significant and beneficial for some Australian residents who are not able to return to Australia due to the current worldwide COVID-19 pandemic.

Proposed effective date 1 July after it is passed as law

1. Giving retirees the opportunity to exit legacy retirement products

Legacy pensions are pensions issued before 20 September 2007 which, because of their terms, had special treatment either for social security purposes or for taxation purposes. These pensions came with several issues which mainly stem from the restrictions on the individual being able to access the balance of the pension above the minimum/prescribed annual pension.

Under this new proposal, the Government will provide a temporary, two-year opportunity for people to commute certain specified legacy pensions such as market-linked, life expectancy and lifetime products (and any associated reserves) back to accumulation phase and to then:
   •    start a new retirement product (such as an account-based pension);
   •    withdraw a lump sum out of the fund; or
   •    retain the funds in an accumulation account.

It is also important to note that if a new pension product is set up from a commuted legacy pension, it will not be grandfathered for social security purposes and tax treatment. Amounts commuted from reserves may also be taxed as an assessable contribution but will not count towards an individual’s concessional contribution cap or give rise to excess contributions.

If you are interested in knowing more about how these proposed superannuation measures will impact you or your superannuation fund, please reach out to your adviser.

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