There have been some significant changes in recent months to superannuation and pension rules that create planning opportunities for both pre and post retirees from 1 July 2022, such as:
- A greater ability to minimise tax payable on superannuation monies passing to adult children or other non-tax dependent beneficiaries.
- The ability to add more funds to the concessionally taxed superannuation/ pension environment, for those age between 67 and 75.
- A broader opportunity to add monies to superannuation following the sale of a home.
- A short-term ability to retain more money in the tax-free pension environment, via an extension to the temporary 50% reduction to minimum pension rates for 2022/23.
A summary of some of the changes that create these opportunities are outlined below:
Contribution rules for those over age 67
From 1 July 2022, individuals aged 67 to 74 no longer need to meet a work test, (or qualify for a work test exemption) to make voluntary contributions to superannuation (excluding personal deductible).
As well as now being able to make super contributions without passing a work test individuals aged 67 to 74 can use the “bring forward rule” for non-concessional contributions (contributions for which you don’t claim a tax deduction). This was previously restricted to those under age 67.
Based on current contribution caps, this means a contribution of up to $330,000 can be made in one year, if eligible.
This may assist individuals who:
- have a large taxable component in their superannuation fund and wish to reduce the tax that would be paid on their death;
- those wishing to add money to superannuation as part of their overall planning, but were previously unable to do so as they were not working; and
- members of a couple seeking to equalise their superannuation balances to optimise their overall superannuation position.
Before proceeding with additional superannuation contributions, consideration must be given to previous years superannuation contributions and the relevant caps, your total superannuation balance at the prior 30 June, as well as your overall financial position including cashflow, tax, and estate planning before making a super contribution.
In addition to the above contribution changes, the downsizer contribution rules eligibility age is also changing from 65 to 60.
This contribution allows proceeds from the sale of a home to be contributed to superannuation of up to $300,000 per individual for those aged 60 and over. This potentially allows a couple selling an eligible home to add up to $600,000 to their superannuation balances.
Downsizer contributions requires certain criteria be met, one of which is having owned a property for a minimum of 10 years and having lived in the property for a period of that time. The lowering of the age eligibility provides opportunities for investment into the concessionally taxed superannuation environment to fund retirement where contribution caps and total super balance caps may have already been reached. Using these rules effectively may also assist those seeking to manage their assessable assets for social security purposes.
Commonwealth Seniors Health Card
Further changes are in the pipeline for senior Australians. While superannuation wasn’t a focus for either party in the lead up to the election, Labor matched the Coalitions proposed policy to expand the eligibility for the Commonwealth Seniors Health card, proposing to increase the income cut-off level to $90,000 for individuals and $144,000 for members of a couple.
This will widen opportunities for individuals to gain access to cheaper medicine under the pharmaceutical benefits scheme, potential bulk billed doctor visits, and other state-based discounts.
As always, care should be taken prior to implementing any changes to your superannuation position and the above information is for your general information only.
Should you wish to understand these changes more and what opportunities they may create for you, please feel free to contact Johnsons MME Financial Advisory to speak to an adviser.