Too old to contribute to Super? Think again!
Nina Kazmierczak- Partner and Principal Adviser
Sovereign Wealth Partners
Over the last few years, there have been several moves implemented to limit the amount of money that can be contributed towards superannuation. From 1 July 2022, however, there have been significant concessions given to those aged 65-75 years.
The following contribution options will be available until age 75^^, irrespective of whether you are working or not:
* NCCs (both personal and spouse) depending on your super balance^;
* Salary sacrifice;
* Small business CGT contributions*;
* Personal injury contributions*; and
* COVID-19 re-contributions.
On top of this the bring-forward rule to contribute up to $330,000 in one go can be used up to the year an individual turns 75. This was previously not available after age 67.
Downsizer contributions into superannuation of up to $300,000 for each spouse are unchanged, with no age limit and no Transfer Balance Cap limitation.
^Note that other requirements may apply including, for example, an individual’s Transfer Balance cap (currently $1.7m).
^^Contributions can be accepted up to the 28th day of the month following the month the individual turned 75.
*Note that some contributions (small business CGT, personal injury and COVID-19 re-contributions) require an approved form to be provided to the fund no later than the time of the contribution.
Claiming a tax deduction on Personal Concessional Contributions
For those seeking to claim a tax deduction of up to $27,500 on a separate super contribution through Personal Concessional Contributions, there is no work test for those under 67 but there is now a work test for those aged 67 to 75.
The requirements for this work test are essentially the same as the old work test for the acceptance of contributions, that is, the individual must be gainfully employed for at least 40 hours in 30 consecutive days in the income year the contribution is made.
The change also includes a work test exemption that contains the same criteria as the old work test exemption for the acceptance of contributions (i.e. TBC below $300,000 prior to 30 June, met the work test in the prior financial year, and have not used the exemption before).
There’s no requirement for the work test to be met before the contribution is made. As such, the work test can be met in the same income year, but after the contribution is made. And for those with less than $300,000 in superannuation at 30 June who pass the work test, personal concessional contributions are also allowed during the next financial year, irrespective of work status.
How can this help me?
These changes open up more superannuation strategy and tax savings to senior Australians who might be late in taking advice, who have not had savings available previously, who have savings outside of super that they could not contribute prior to retirement or have retired early.
They also provide the potential for recontribution strategies which can give a better estate planning result. Such strategies give the option of either commencing a (new) pension with the contributed amount (i.e. running two or more pensions) or combining the contributed amount with the commuted value of an existing pension to commence one pension. Please note that a commutation may impact the existing pension and access to the Age Care pension.
Having two or more pensions can provide a better death benefit tax outcome where more than the minimum pension is drawn while the individual is alive. This occurs where the additional amount is drawn from the pension with the higher taxable component, thus reducing the taxable component at a greater rate.
This article is highly summarised and there are many other considerations arising with superannuation contribution and withdrawal strategies. So please speak to your adviser before taking any action.
Disclosure Statement: This communication has been approved and issued by Sovereign Wealth Partners Pty Ltd ABN 18 607 071 367 Corporate Authorised Representative (No. 001233909) of Sovereign Capital Pty Ltd ABN 44 164 127 833, AFSL 456235.
General Advice Warning: Any advice included in this article and associated links is general in nature and does not take into account your objectives, financial situation or needs. If a product we recommend has a Product Disclosure Statement (PDS), you should read it before making a decision. Past performance is not a reliable indicator of future performance. We do not endorse any information from research providers that we provide to you, unless we specifically say so.