27 July 2022
By Colin Lewis, Head of Strategic Advice, Fitzpatricks Private Wealth
It may seem untimely having just got over the 30 June hurdle to be thinking about your finances again so soon, but with the new financial year under way, now really is a good time to ensure your ‘financial house’ is sorted for 2022-23.
Good financial planning is a year-round consideration, not just a 30 June event.
The new tax year hails in the opportunity for many people previously unable to contribute to superannuation to now do so under new rules that came into play on 1 July.
So, what are the super opportunities and considerations this year?
The pre-tax concessional contributions (CCs) cap remains at $27,500. Regardless of how much you have in super, you and/or your employer may contribute up to this amount before additional tax applies. But there is no real penalty for exceeding this cap as the interest charge on the tax liability arising on an excess amount was removed last year. So, you no longer need to worry about accidentally breaching this cap.
An employer’s compulsory Superannuation Guarantee (SG) contribution rate is now 10.5 per cent and the $450 per month minimum income threshold no longer applies.
Any unused CCs cap amounts (since 2018-19) can now be used, provided the total amount you had in super – your total superannuation balance (TSB) – was less than $500,000 at 30 June 2022.
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 then you may contribute under the ‘work test exemption’, provided you haven’t used this exemption before.
If you wish to top-up your super, you can make a personal deductible contribution and/or arrange to make salary sacrifice contributions via your employer.
With a deductible contribution, you must provide your fund with a notice of intent to claim a tax deduction and have it acknowledged. This is usually done around tax time, but if you’re planning on starting an income stream, rolling over or withdrawing the contribution, it must be done first.
Salary sacrifice allows you to ‘set-and-forget’ for the year as contributions will automatically be made on a regular basis. Making regular deposits into an investment at regular intervals is a powerful way to invest – known as ‘dollar cost averaging’. It provides the opportunity to build exposure to growth assets in a disciplined way, can reduce the risk of investing during volatile times and avoids the pitfalls of trying to time entry into markets. A salary sacrifice arrangement is a way of implementing dollar cost averaging.
Alternatively, making your own contribution gives you control and certainty over the amount and timing of the contribution and dealing with the CCs cap at year end. If you wish to adopt dollar cost averaging, you need to be disciplined as you administer this yourself.
Also, you are not reliant on someone else, and have peace of mind knowing your money gets to your fund. Many employers leave it for months between deducting money from wages and making the contribution. Unfortunately for some, the money never gets there. It also avoids a nightmare should your employer go into administration/receivership, as money deducted from salary but not contributed may take years to recover.
In calculating voluntary CCs include your employer’s SG contributions or notional taxed contributions for a defined benefit fund, and your fund’s administration expenses and insurance premiums if paid by your employer, as all count towards the CCs cap.
You can now split up to 85 per cent of your CCs made in 2021-22 to your spouse’s super – to even up balances to maximise the amount you can both get into the tax-free retirement phase, to move entitlements from a younger to older spouse for earlier access to tax-free benefits, or from a spouse at or over Age Pension age to a younger spouse to shelter from Social Security means testing.
If you used a ‘contribution reserving strategy’ in June to maximise your tax deduction in 2020-21, that contribution must have been allocated by 28 July.
The work test no longer applies to after-tax non-concessional contributions (NCCs), but you cannot contribute if your TSB was $1.7 million or more at 30 June.
The NCCs cap is $110,000, however if your TSB was less than $1.48 million at 30 June – and you’re under 75 on 1 July – you may contribute up to $330,000, and if it was between $1.48 and $1.59 million then it’s $220,000 – but check your contribution history from 1 July 2020.
You could also make a spouse contribution provided they’re under 75.
You may be eligible to make a ‘downsizer contribution’ of up to $300,000 if you sell a home that you or your spouse owned for at least 10 years and are aged 60 or more – boosting your super even if you’re otherwise ineligible to contribute due to age or your TSB.
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 (up from $30,000).
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.
If you start a retirement phase pension (e.g. account-based pension) for the very first time, the limit on how much you can transfer into it – your 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.
The minimum pension drawdown rates remain halved, but if you need more income consider taking it as a lump sum ‘partial commutation’ as it helps your TBC.
Now is the time to start planning to get ahead of the game.
*This information is prepared by Fitzpatricks Private Wealth Pty Ltd (Fitzpatricks) ABN 33 093 667 595 AFSL No. 247 429 and, where relevant, its related bodies corporate. The information in this publication is of a general nature only. All information has been prepared without taking into account your objectives, financial situation or needs. Because of this, we recommend you consider, with or without the assistance of a financial adviser, whether the information is appropriate for you.