Planning for the new year

By Colin Lewis, Head of Strategic Advice, Fitzpatricks Private Wealth
February 2023

New Year? It’s already the end of February and before you know it, it will be June and tax time again.

So, if you have time, it may be worthwhile to take stock of where you’re at financially and to make sure you’re on track.

When it comes to the constantly changing superannuation environment, the last thing you want is to be unaware of a change and miss out on an opportunity you didn’t know existed.

If you are under age 75, consider topping up your super as it’s the most tax-effective structure to hold your money in – technically, you have up until 28 days after the end of the month in which you turn 75 to contribute.

Unlike previous tax years, the work test no longer applies to people aged 67 to 74 who wish to make after-tax non-concessional contributions (NCCs) – great for those who are fully retired, or only work one day a week, or volunteer.

However, you cannot contribute if your total superannuation balance (TSB) – the total amount you have in the super system – was $1.7 million or more at 30 June 2022.

Non-concessional contributions bring-forward rule

The NCCs cap is $110,000.

However, if you haven’t triggered the NCC bring-forward rule in the past two financial years and you were under age 75 at 1 July 2022, you may contribute up to $330,000 provided your TSB was less than $1.48 million at 30 June 2022 and up to $220,000 if it was $1.48 million to less than $1.59 million.

So, check your contribution history from 1 July 2020. Be on the lookout for any excess concessional contributions (CCs) not withdrawn from super which count as NCCs and, along with other NCCs, may have inadvertently triggered the bring-forward rule – a trap for the unwary.

Concessional contributions

Whilst the work test no longer applies to NCCs and salary sacrifice contributions, it continues to apply to personal contributions for which you claim a tax deduction.

So, if you’re aged 67 to 74 and wish to make a personal deductible contribution, you must still first meet the work test – 40 hours of gainful employment in 30 days.

If you won’t meet this test, but met it in 2021-22 and had a TSB below $300,000 at 30 June 2022 then you may contribute under the ‘work test exemption’, provided you haven’t used this exemption before.

Catch-up concessional contributions

If you didn’t utilise the full $27,500 CCs cap last year or the previous $25,000 cap, then any unused cap amounts since 2018-19 may now be contributed this financial year – giving you a bigger deduction and tax saving. However, the catch here is your TSB must have been less than $500,000 at 30 June 2022.

Utilising unused CCs cap amounts can be extremely useful where you need to make a large one-off contribution to reduce capital gains tax arising from say the sale of an investment property.

Downsizer contributions

You may be eligible to make a downsizer contribution of up to $300,000 ($600,000 for a couple) if you sell a home that you or your spouse owned for at least 10 years and contribute the proceeds within 90 days of settlement.

The minimum age to make a downsizer contribution is now 55, down from 60 (originally 65).

A downsizer contribution allows you to boost your super even if you’re otherwise ineligible to contribute due to age or TSB – meaning you can still contribute even if you’re aged 75 or more or have $1.7 million or more in super.

Other contributions

You could make a contribution for your spouse provided they’re under 75.

A spouse contribution may give you the ability to claim a tax offset of up to $540 depending on your spouse’s income. Boosting your spouse’s super while getting a tax benefit in the process is a win-win situation.

If you’re an eligible small business owner selling your business or an active business asset, don’t overlook the opportunity to make a CGT cap contribution of up to $1.65 million.

And if you’re using super to save for your first home, the maximum releasable amount of voluntary contributions made over multiple years under the First Home Super Saver Scheme is now $50,000.

Staring a super pension

If you’re looking to start a retirement phase pension, e.g. account-based pension (ABP), for the very first time, the limit on how much you can transfer into it – the general transfer balance cap (TBC) – is $1.7 million. But if you already have a pension, be mindful your personal TBC may be less. You can obtain your TBC from ATO Online through myGov.

On 1 July, the general TBC will be indexed by $200,000 to $1.9 million given recent movements in the CPI. Depending on your circumstances, you may be able to get more into the tax-free retirement phase. It also impacts how much you can receive by way of a death benefit income stream when a loved one dies.

So, it could be worth waiting.

This is providing the Government does not freeze the cap between now and then, and we have a Federal Budget in May. It was rumoured in the lead-up to the last Budget in October that the Government could freeze this cap.

Pension drawdowns

Remember, the minimum annual payment required for ABPs and market-linked pensions – known as term allocated pensions (TAPs) – remains halved for the 2022-23 financial year.

Should you require more income than the reduced minimum, consider taking it as a lump sum withdrawal – partial commutation – as it helps your TBC.

Super provides the opportunity to grow your retirement savings while reaping tax benefits along the way. You never know, the tax savings could compensate you for what you’ve outlaid over this expensive period.

It’s an ideal time to plan to get ahead of the game before tax time in June – which will be upon us before you know it.

*The information in this document (information) has been prepared by Fitzpatricks Private Wealth Pty Ltd (ABN 33 093 667 595, AFSL 247 429) (Fitzpatricks). The information is of a general nature only and does not take into account the objectives, financial situation or needs of any person. Before acting on the information, investors should consider its appropriateness having regard to their own objectives, financial situation and needs and obtain professional advice. No liability is accepted for any loss or damage as a result of any reliance on the information.


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