New Superannuation opportunities from July 2022

What does this mean?

• Currently, those who are over 67 must meet a ‘work-test’ to enable them to contribute funds to super. This means you had to be ‘gainfully employed’ (not a volunteer) for at least 40 hours during a 30-day period. 
• The maximum amount currently allowed to be contributed to super personally (non-concessional or NCC) is generally $110,000 per year. The bring-forward rule enables individuals to make additional contributions without having to pay extra tax. You may be able to make three times the annual cap (i.e. $330,000) in one financial year – however this was previously limited only to those 65 years or younger. The new rules mean that from 1 July 2022 this bring-forward rule can also be to be used by those up to age 75.

You could save your family and beneficiaries thousands of dollars of death tax!

• Do you have a high taxable component in super and aged over 65 but under 76?
• Many individuals may not be aware that a large part of their super may be taxable if paid to a non-tax dependent on your death. 
• Individuals who are aged over 60 do not pay tax on super income streams regardless of the components (taxable or tax free). However, should an individual pass away, the taxable component of the benefit paid on death may incur tax if they are classified as non-dependent for tax purposes (for example your adult children).
• This change of legislation to enable contributions up to age 75 means that individuals can withdraw super and re-contribute as a personal contribution which can increase the tax-free component. We have saved our clients’ families thousands of dollars in death tax using this strategy and the extension of this strategy to those over 65 will further enable us to do this.
• Depending on the total amount held in super, a recontribution strategy could completely eliminate death benefit tax over a number of years, making superannuation even more attractive as an estate planning investment.

Who else is this good for? How can our clients benefit?

• You no longer have to be working to make contributions to super up until age 75
• Are you selling another investment or asset? – This change enables clients to use super contributions to reduce other taxable income such as a capital gain from sale of property or shares
• Have you received a lump sum to invest such as an inheritance? - Enables clients to invest funds into super which is a tax-free environment which can be used to generate tax-free income in retirement
• Do you have funds in investments outside super, such as a term deposit or bank account, that has minimal earnings potential? – Opens the ability to invest funds into existing or new super funds with an extensive range of investment options to suit your need and comfort level when it comes to risk v’s return
• Have you sold a business or asset that qualifies for small business CGT cap exemptions? – This change enables older clients to use CGT exemptions cap to place even higher levels of funds into super to generate a tax-effective investment from which to draw tax-free income
• Individuals aged less than 75 at the prior 1 July will be eligible to access the NCC bring forward arrangement, subject to meeting all relevant eligibility criteria:
• Are you a couple that has one member with high super balance and one lower? – Using the bring-forward provisions, you may be able to cash out and recontribute to a spouse’s account to manage your Total Super Balance (as there is a maximum level you can transfer to a tax-free income stream)
• Funds to invest after sale of shares, investment property or receipt of an inheritance? – This change may enable you to invest up to $330,000 into super in one financial year
• Selling your family home? – Contributing proceeds to super along with the Downsizer contribution opportunity means a much larger sum can be invested into the super environment, or can be used as an alternative option if you don’t qualify for the Downsizer strategy

Case Study

Bill, aged 69 has $500,000 in his super fund, which consists of the following components:

• Tax free component: $175,000 (35%)
• Taxable component: $325,000 (65%)

Bill’s wife sadly passed away suddenly last year and therefore he has nominated his adult children to inherit his superannuation upon his own death. In the current scenario, his children would pay $55,250 in tax (15% plus medicare on taxable component).

If he;

• Withdraws $330,000 from super and re-contributes as a personal (non-concessional) contribution
• Bill will now be able to do this as he has met a condition of release (over 65) and the bring forward provisions have been extended up to Age 75
• Tax components change to:
• Tax free component: $389,500 (78%)
• Taxable component: $110,500 (22%)
• Reduces Death benefit tax to $18,785 thus saving $36,465
• Bill will have the option to again repeat this strategy in 3 years if he wishes to completely eliminate his taxable component (depending on his super balance at that time)

As always, there are conditions and criteria to meet to enable these contributions and strategies and what works for some, may be different for others!

Speak to an adviser to explain and see if the above options are suitable for you – it is important to seek professional advice on your own specific circumstances.