The new financial year brought a flurry of significant superannuation contributions changes from 1 July 2022 – and with change comes opportunities for you to both revisit your retirement plan and maximise your retirement savings.
What are the changes?
Originally announced in the 2021 Federal Budget, the following changes apply as of 1 July 2022:
- If you are between the ages of 67 and 74, you no longer need to meet a work test to make voluntary, non-deductible, contributions.
- If you are under 75 years of age and have a total super balance of less than $1.7 million, you may have the opportunity to make large non-concessional contributions (possibly up to three years’ worth) in a single year.
- The minimum age to make Downsizer Contributions reduced to 60 years, allowing you to use the proceeds from the sale of your home (if you meet the relevant eligibility criteria), to further boost your retirement savings.
- The Superannuation Guarantee rate increased from 10% to 10.5% p.a. and the $450 minimum income threshold for Superannuation Guarantee contributions has been removed. This is particularly relevant if you are an employer.
How will these changes benefit you?
Abolition of the work test
Prior to 1 July 2022, the work test required you to have worked for at least 40 hours in a consecutive 30-day period during the financial year, before any super contributions were accepted (before or after tax) – for all voluntary non-deductible contributions, this has now been abolished.
While existing contribution rules and caps continue to apply, the work test will still need to be met if you want to claim a personal tax deduction for any voluntary contribution made on or after 1 July 2022.
Prior to 1 July 2022, you were only permitted to make non-concessional contributions of more than the annual $110,000 annual cap if you were under the age of 67.
The new changes mean that up to $330,000 is permitted to be made in a single year if your total superannuation balance is under $1.48 million as of 30 June of the previous financial year (or $220,000 if your total superannuation balance was greater than or equal to $1.48 million and less than $1.59 million as of 30 June of the previous financial year).
From 1 July 2022, the cut-off age to access these bring-forward rules increased to 75 years of age. However, you will still need to meet the above total superannuation balance thresholds to be eligible.
New age threshold for Downsizer Contributions
The eligibility age to make a Downsizer Contribution to superannuation will be lowered from age 65 to 60. If you are an eligible retiree (who meets the necessary criteria), you could contribute a lifetime limit of up to $300,000 to your superannuation from the proceeds of the sale of your home. Couples will be eligible to contribute up to $600,000 ($300,000 per person).
Proceeds from the sale of your home that are transferred to a superannuation fund account will be included in your asset test for the Age Pension.
Removal of $450 monthly income threshold
From 1 July 2022, employees (regardless of how much they earn) will be entitled to receive minimum employer Superannuation Guarantee contributions of 10.5%. The minimum Superannuation Guarantee rate will continue to increase by 0.5% each year until 1 July 2025.
If you are an employee, you should expect your superannuation contributions to increase from 1 July 2022.
If you are an employer, it is important to review your existing payroll systems to ensure you are meeting the new minimum compulsory superannuation contributions for your employees, to avoid penalties and charges for any shortfall.
However, there are certain exempt employees or individuals who are excluded from these rules, such as employees under the age of 18 who work less than 30 hours per week (unless a workplace agreement specifies otherwise).
Navigating your way through the superannuation contribution rules can be very complex. Should you have any questions or require our assistance, please contact your local William Buck Advisor.