Update of Superannuation contribution rules from July 1, 2020
The following outlines what has changed.
An increase in the age required for the work test.
From July 1, 2020, the age required rose from 65 to 67. The main benefit of this change is that it provides, where possible, an additional opportunity to implement voluntary super contribution strategies.
What taxable contributions can be made for the year ending June 30, 2021?
There is a cap of $25,000 per person for those able to make extra contributions to their super during the 2020/21 financial year. Any excess over this concessional contribution (CC) cap is taxed at the individual's marginal tax rate.
CCs are contributions where a tax deduction is claimed and include:
- Superannuation guarantee contributions (SGCs)
- Employer voluntary / extra contributions like salary sacrificing
- Member taxable contributions claimed as a deduction in personal ITR.
The CC cap will, in most cases, exceed employer contributions in 2020/21. If this is the case, then consideration could be given to adding personal taxable contributions to get you up to the $25,000 limit.
The higher your income, the greater the tax savings and keep in mind that there is no upper age limit for being eligible to receive SGCs.
Carry forward provisions
An indivdual can carry forward CCs if their total superannuation balance (TSB) is less than $500,000.
Unused contributions can be carried forward for five years. This option came into effect in 2019/20.
An important consideration prior to June 30, 2021 is to see if you can utilise this carry forward option to bolster your CCs before the date noted.
If an individual is under 67, there is no work test required to be able to make a contribution.
The work test is where, once you turn 67, you must be able to show that you have been gainfully employed for 40 hours or more in any 30-day period in a financial year.
If an individual is between the ages of 67 to 74, they must meet the work test in order to make a contribution.
Splitting of contributions
An individual can split their CCs that are made on their behalf to a spouse but they need to meet certain requirements.
The main reasons to split contributions are to:
- Assist with the limit of only being allowed to have $1.6 million to start an account-based pension with
- Assist with ability to make non-concessional contributions (NCC) given the cap limit also of $1.6 million
- Assist with the ability to use the carry forward provisions given the member balance cap of $500,000
- Address age differences between spouses and the ability to access benefits at an earlier date
- Access Centrelink advantages by minimising a member’s account
- Allow a member to have sufficient superannuation to be able to pay life insurance.
Spouse rebate for super contributions
A spouse rebate, up to a maximum of $540, can be claimed for superannuation contributions for the year ending June 30, 2021.
If your spouse earns less than $37,000 per year and you contribute $3,000 into superannuation for them, you can claim a tax rebate of $540.
Spouse contributions can be made if you are aged under 75 from July 1, 2020.
What tax-free contributions can be made for 2020/21?
Non-concessional contributions (NCC) are those contributions made into a super fund from after tax income. In this case, an individual is not claiming a tax deduction. There is a cap for NCCs of $100,000 for the 2020/21 year.
Members under 65 have an option to contribute up to $300,000 over a three-year period, depending on their total superannuation balance (TSB). The rule works as follows:
TSB NCC and bring forward amount
< $1.4M $300,000 over 3 years
> $1.4 & < $1.5M $200,000 over 2 years
> $1.5 & < $1.6M $100,000 over 1 years
> $1.6M $0 (nil)
To be able to make an NCC, a member must meet the work test, as described above.
The increase from age 65 to 67 also impacts on the ceasing work contribution rule as of July 1, 2020 by given more time to make a NCC.
NCCs can be made on a once-off basis in the financial year after you have ceased employment if your TSB is less than $300,000 as of June 30 in the previous financial year. You also need to be under 75.
Downsizing contributions and how this applies to those over 65 years of age.
From July 1, 2018, anyone 65 years or older can make a downsizer contribution of up to $300,000 from the proceeds of selling their residential home.
The contribution is not an NCC and does not count towards the contribution caps, so it goes into superannuation as a tax-free contribution.
If a member has more than $1.6 million in superannuation, they are still allowed to make a downsizer contribution.
If the downsizer contribution is made and is placed into retirement phase, it will count towards a member’s transfer balance cap, which is $1.6 million.
If you are thinking of downsizing then speaking to a financial planner will help clarify eligibility requirements.
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