26 January 2022
By Colin Lewis, Head of Strategic Advice, Fitzpatricks Private Wealth
The festive break is the perfect time to kick back with family and friends. It’s also a good time to take stock of where you’re at financially and to make sure you’re on track in the new year.
When it comes to the constantly changing superannuation environment, the last thing you want is to miss out on an opportunity you didn’t know existed or be unaware of an upcoming change.
If you are under age 67, consider topping up your super as it’s the most tax-effective structure you can invest in.
From your 67th birthday (up until 28 days after the end of the month in which you turn 75), you must meet the work test – 40 hours of gainful employment in 30 days – to make voluntary contributions.
If you don’t meet the work test, you may still be able to contribute this financial year under the work test exemption (WTE), but the catch is you must have had met the work test in 2020-21 and had a total superannuation balance (TSB) – the total amount you’ve got in the super system – at 30 June 2021 of less than $300,000. So, if you’ve got too much in super or were fully retired last financial year you won’t qualify.
Take Bob who turns 67 on 1 May 2022. He retired on 1 May 2021 and his TSB on 30 June 2021 was $297,000.
Until 30 April 2022, Bob can make pre-tax concessional contributions (CCs) of $27,500 and after-tax non-concessional contributions (NCCs) of up to $330,000. If Bob doesn’t contribute before his 67th birthday – when the work test normally applies – he can do so from 1 May to 30 June 2022, under the WTE.
Now, this is all supposed to change from 1 July 2022 – removal of the work test for NCCs for people aged 67 to 74. Great news if you are fully retired, only work one day a week, or volunteer.
Disappointingly, this change is up in the air as the bill to make it law sits in Parliament. It might still be passed, but with so few parliamentary sitting days left before the election is likely to be called, it’s anyone’s guess what will happen.
Catch-up concessional contributions
If you didn’t utilise the full $25,000 CCs cap in 2018-19, 2019-20 or 2020-21 then any unused cap amounts may now be contributed this financial year – giving you a bigger deduction and tax saving. However, the catch here is your TSB at 30 June 2021 must have been less than $500,000.
Say your CCs were $18,000, $20,000 and $22,000 in each of the last three financial years, then you’ve got an additional $15,000 ($7,000 + $5,000 + $3,000) to play with this financial year and you (or your employer) can contribute up to $42,500 provided your TSB at 30 June 2021 was less than $500,000.
If you don’t utilise unused cap amounts before 30 June 2022, all is not lost as you can carry them forward on a rolling five-year basis. Accordingly, $7,000 can be carried forward until 2023-24, $5,000 until 2024-25 and $3,000 until 2025-26, provided in the year you wish to apply them, your TSB at the previous 30 June is less than $500,000 and, of course, you’re eligible to contribute.
So, don’t leave it too long if your age and work status will be an issue – in the absence of the pending change in law.
Utilising unused CC 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.
Non-concessional contributions bring-forward arrangement
If you haven’t triggered the NCC bring-forward rule in the past two years and were under age 67 at 1 July 2021, you can make NCCs of up to $330,000 provided your TSB at 30 June 2021 was less than $1.48 million; up to $220,000 if it was $1.48 million to less than $1.59 million; otherwise the maximum is $110,000. You cannot contribute if your TSB was $1.7 million or more.
It could give retiree couples aged 65 and 66 who sell their home and are eligible to make downsizer contributions the ability to contribute up to $657,500 each ($27,500 + $330,000 + $300,000) excluding any catch-up CCs.
Hand in glove with the removal of the work test for people aged 67 to 74 is the extension of the NCC bring-forward rule for this age group, but as the bill has stalled in Parliament, this change is uncertain.
To make a downsizer contribution following the disposal of a property that was your home which you or your spouse owned for at least 10 years, you must be 65 or more at the time of the contribution. It allows you to boost your super even if you’re otherwise ineligible to contribute due to age, work status or TSB.
From 1 July, the minimum age is to reduce to 60, but the enabling legislation is sitting in Parliament and so this is also uncertain.
If you are selling your home and wish to take advantage of this change – assuming it becomes law – you need to ensure settlement is not before April as the contribution must be made within 90 days of change of legal ownership.
The age limit for spouse contributions is now 74, but the receiving spouse must meet the work test or WTE from age 67.
A spouse contribution may give you the ability to claim a tax offset of up to $540. Boosting your spouse’s super while getting a tax benefit in the process is a win-win situation.
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.
Now, during your downtime, is an ideal time to plan.
*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.