Changes to superannuation that you need to be aware of
There are some significant changes to superannuation that you need to be aware of that have come into effect from 1 July 2022.
Removal of the work test for most contribution types
Increase to the age non-concessional bring forward can be utilised
Increase to the superannuation guarantee (SG) rate and removal of an exemption category
Carry forward concessional contributions
Decrease to downsizer contribution eligibility age
Continuation of reduced account based pension minimums
Removal of the work test for most superannuation contribution types
Many Australians can now contribute to their retirement savings with more ease, as the work test has been waived for most contributions. This provides greater flexibility and convenience when it comes to retirement planning. However, the work test still applies to personal contributions claimed as a tax deduction.
Remember that before the 1st of July 2022, to receive most types of voluntary contribution, clients aged 67-74 had to have been gainfully employed for at least 40 hours in any consecutive 30 day period during the financial year in which the contribution occurred or satisfied the work test exemption.
An increase to the age that the non-concessional bring forward can be utilised
The age at which the non-concessional bring forward can be utilised increased to 74 or younger. Previously the non-concessional bring forward could only be triggered if you were 66 or younger at the start of the relevant financial year.
Remember there are four eligibility criteria to trigger the non-concessional bring forward during 2022/23;
You are 74 or younger as at 1 July 2022
You did not trigger the non-concessional bring forward by receiving non-concessional contributions of more than the standard non-concessional cap during either 2020/21 ($100,000) or 2021/22 ($110,000).
If you’ve turned 75 during 2022 - 2023 meaning you were 74 as at 1 July 2022, the contribution must occur within 28 days from the end of the month they attained age 75.
You satisfy the total superannuation balance criterion as illustrated in the table below.
Total super balance as Max 2022/23 non-concessional contribution
at 30 June 2022
<$1,480,000 $330,000 (three year bring forward)
$1,480,000 - $1,589,999 $220,000 (two year bring forward)
$1,590,000 - $1,699,999 $110,000
$1,700,000 Nil
Here is an example of non-concessional bring forward
Simon (age 68) retired several years ago, had a total superannuation balance as at 30 June 2022 of $1,395,000, and did not receive any non-concessional contribution during 2020/21 or 2021/22.
During 2022/23 Simon sells an investment property and receives proceeds of $1,000,000. After the 50% CGT discount, the assessable capital gain from the sale is $200,000.
Due to the removal of the work test and the increase to the age at which the non-concessional bring forward can be utilised, Simon can receive non-concessional contributions of up to $220,000 during 2022/23. He cannot receive the full $330,000 due to the total superannuation balance eligibility criterion.
Simon is unable to offset the capital gain via a personal contribution claimed as a tax deduction. This is because Paul is not eligible to receive this type of contribution, as he does not satisfy the work test or work test exemption.
Here is an example of non-concessional bring forward
Jane (age 70) retired several years ago. She has an account based pension with a 30 June 2022 value of $700,000 (100% taxable component) and minimal funds outside superannuation.
In the event of her death, Jane’s account based pension will be paid by her superannuation fund as a lump sum death benefit to her non-dependant adult daughter Michelle.
Due to the removal of the work test and the increase to the age at which the non-concessional bring forward can be utilised, Jane can withdraw (as a lump sum) $330,000 from her account based pension, recontribute this amount as a non-concessional contribution and commence another account based pension with these newly contributed funds.
By performing the withdrawal recontribution strategy, Jane has increased the tax-free component of her superannuation by $330,000. In the event of her death, this strategy will (based on the current balance) save Michelle up to $56,100 ($330,000 x 17%) in death benefits tax.
Increase to the superannuation guarantee (SG) rate and removal of an exemption category
The SG rate is the minimum percentage of an employee's ordinary time earnings their employer must pay to their superannuation. There is also an upper limit of earnings per quarter for which an employer has to pay SG, known as the maximum super contribution base.
The 2022/23 SG rate has increased to 10.5%. Which is up from the 10% in 2021/22.
Before the 1st of July 2022, employers were not required to pay SG where an employee’s ordinary time earnings was less than $450 in a calendar month. Since 1 July 2022, such employees are entitled to receive SG subject to the other exemption categories.
Carry forward concessional contributions
The carry forward rule for concessional contributions means your cap may be higher if you did not use the full amount of your cap in earlier years. This is called the carry-forward of unused concessional contributions.
Concessional contributions include superannuation guarantee, salary sacrifice and personal contributions which are claimed as a tax deduction.
Unless the concessional carry forward applies, a client’s concessional contributions are limited to the standard concessional cap of $27,500 (2022/23).
Since 1 July 2022, if you’re eligible to utilise carry forward concessional contributions you will have a 2022/23 concessional cap of up to $130,0002 minus all concessional contributions they have received within the relevant concessional caps since 1 July 2018.
Here is an example of carry forward concessional contributions
Peter (age 57) satisfies the criteria to utilise carry forward concessional contributions including having a total superannuation balance (TSB) of <$500,000 as at 30 June 2022.
During 2022/23 he will earn taxable income of $150,000 as a sole trader.
Since 1 July 2018, Peter has received the following concessional contributions:-
2018/19 - $20,000
2019/20 - $15,000
2020/21 - $24,000
2021/22 - $18,000
Peter’s 2022/23 concessional cap is $53,000. This consists of the $27,500 standard concessional cap for 2022 - 2023, plus $5,000 (2018/19 unused amount), plus $10,000 (2019/20 unused amount), plus $1,000 (2020/21 unused amount), plus $9,500 (2021/22 unused amount).
Decrease to downsizer contribution eligibility age
A downsizer contribution allows you to contribute up to $300,000 ($600,000 for a couple) from the proceeds of the sale of your principal place of residence to your superannuation.
Since 1 July 2022, the eligibility age to make a downsizer contribution has reduced to 60 at the time of the downsizer contribution. It was previously 65. Since 1 January 2023, the eligibility age has reduced further to 55 at the time of the contribution.
Downsizer contributions are separate from the other contribution caps, and unlike non-concessional contributions are not subject to the total superannuation balance eligibility criterion or an upper age restriction.
You must satisfy various eligibility criteria to make a downsizer contribution, including that the property was owned for 10 or more years, and the proceeds are either fully or partially exempt from capital gains tax under the main residence CGT exemption.
Continuation of reduced account based pension minimums
Superannuation income streams (most commonly account based pensions) are required to make minimum pension payment(s) each financial year.
As was the case for the 2019/20, 2020/21 and 2021/22 financial years, the minimum pension requirement has also been reduced for the 2022/23 financial year as illustrated in the table below.
Age Standard Minimums Reduced minimums for 2019/20
to 2022/23 financial years
Under 65 4% 2%
65-74 5% 2.5%
75-79 6% 3%
80-84 7% 3.5%
85-89 9% 4.5%
90-94 11% 5.5%
95 or older 14% 7%
Either via standing instruction or specifying just prior to the payment, you should elect whether each payment from superannuation is a pension payment or a lump sum withdrawals. Where you have multiple interests in the one fund (such as an account based pension and an accumulation account), you should follow the same principle and specify from which interest a withdrawal will be sourced.
Here is an example of reduced account based pension minimums
Rebecca (age 73) has an account based pension with a 30 June 2022 value of $1,500,000 and $500,000 in the accumulation phase of superannuation. During 2022/23, she wants to receive a total of $75,000 from her superannuation to meet her cash flow requirements.
The reduced minimums allow Rebecca to receive $37,500 ($1,500,000 x 2.5%) as pension payments from her account based pension, and the remaining $37,500 as lump sum withdrawals from her accumulation account. By doing so, Rebecca is retaining as much funds as possible within her account based pension which are subject to the 0% tax on earnings.
Here is an example of reduced account based pension minimums
Tristan and Shelly are a married couple (both age 86). They each have an account based pension with a 30 June 2022 balance of $1,000,000 with Shelly nominated as the reversionary beneficiary for Tristan’s pension and vice versa. During 2022/23 they each wish to receive a total of $100,000 their superannuation to meet their cash flow requirements.
Even though neither Tristan nor Shelly are impacted by the transfer balance cap or have funds in the accumulation phase, they may still benefit from the reduced minimums. If during 2022/23 they each draw $45,000 ($1,000,000 x 4.5%) from their pension as a pension payment and $55,000 as a lump sum, this results in a $55,000 debit to their personal transfer balance account.
Upon the death of either Tristan or Shelly, this strategy would decrease the amount of the surviving spouse’s personal transfer balance cap account by $55,000. As a result, the surviving spouse could retain $55,000 more in pension phase than had they have received the entire $100,000 as pension payments.
If you have any questions regarding these changes and how they apply to you please ask me paul@congdonfuzi.com.au