Super legislation changes come and go, many of them are “ho hum” and merely tinker around the edges. We’ve been inundated with enquiries and interest in an upcoming one though. If you’re over 67 and thought the super window was closed, read on…
Legislation was recently passed by the federal government to give effect to key superannuation changes proposed in the 2021 Federal Budget.
The changes to superannuation contribution rules will be welcomed by retirees over age 67 up to age 75. Giving them the ability to contribute personal (non-deductible) contributions from 1 July 2022 will no doubt make a big difference to many individuals and couples in that age bracket.
The new changes include the removal of the work test requirement to be met by individuals aged 67-75 when making salary sacrifice contributions and personal non-concessional super contributions. The extension of eligibility for individuals under 75 to make non-concessional contributions using the “bring-forward” rules where they could contribute up to $330,000 into super. However, the test still needs to be met to claim a tax deduction for personal concessional contributions.
This change, in conjunction with the relatively new and popular downsizer contribution legislation, will further serve to increase the popularity of super. While there may not be accompanying Centrelink benefits to maximising super, a greater understanding of how super works means that contributing is not as daunting a prospect as it once was for many.
In simple terms, many older Australians who thought the door to super was shut, have now found an opening. Before jumping in though, it is important to ask yourself “why super?”. As professional advisers, we often find ourselves wondering “why not super?”.
We covered off on super a few years back in this article but in summary while similar investments are available both inside and outside super these days, our preference for super comes from it’s tax effectiveness. Once your super is converted to an account-based pension (a common strategy to start paying you a regular income to live on), there is no tax. The contributions in are tax-free. Withdrawals are tax-free. The income payments to you are tax-free. The earnings on the underlying investments are tax-free. Capital gains are tax-free. Payment out to your estate can be tax-free. Simply, we use super as a way of reducing your overall personal tax liability.
Reviewing your current retirement planning/income strategy and seeing if the new legislation could be of benefit to you is worthwhile. It could be a useful tool in reducing the taxable component of your super fund (commonly called a “recontribution strategy”) which can be problematic for estate planning. We have had many enquiries in relation to this new legislation, and are finding new uses for it all the time. If you would like a review of your circumstances, please contact one of our financial advisers.
