What you need to know about the new financial year changes to super

Keeping on top of the latest super rules can sometimes feel like a full-time job. But whether you’re a member of a retail fund, industry fund, public sector fund or have a self-managed super fund, now is a good time to learn about the recent changes to super rules that came into effect on 1 July 2020 and determine if they can provide you with more options to keep your retirement plans on track.

Changes to the work test

The age at which the work test1 applies has now moved from 65 years to 67 years. This change allows more flexibility in the timing of when contributions can be made to your super fund and may allow those who have recently turned 65 or 66, but are unable to meet the work test, another opportunity to make contributions. 

This may be valuable to retirees who need more flexibility to rebalance accounts between spouses, add proceeds from sale of other assets or inheritance to super, or recontribute surplus pension income back into their super funds – allowing savings to be held in a tax-effective super environment. 

They may be able to make an annual non-concessional contribution of up to $100,000. But be aware that the standard contribution rules still apply, including having a total super balance below $1.6 million as at 30 June of the prior financial year ― and super members can’t have used-up their contribution limit by using the bring forward provision in a prior year.

Retirees who have income from investments outside of super, capital gains (e.g. from the sale of shares or an investment property) or those receiving a Commonwealth Superannuation Scheme (CSS) defined benefit pension income may also benefit. That’s because super fund members aged 65 and 66 years may now be able to make a tax-deductible concessional contribution to super2 to help reduce their personal tax bill.

Changes to spouse contribution rules

The maximum age for eligibility to receive spouse contributions has now been increased from age 70 to 75. 

Spouse contributions can help couples who want to work together to boost super and get a tax benefit. It generally suits where one member of the couple is a lower-income earner. If their spouse pays up to $3,000 into their super account, the low-income earner’s super gets a boost. And the spouse making the contribution may be eligible for up to $540 as a tax offset.

Under this option, to get the maximum spouse contribution tax offset of $540, the spouse receiving the contribution must earn no more than $37,000 per annum (p.a). If they earn above this income level, but below $40,000 p.a. the tax offset will be lower. When the low-income earner receives above $40,000 p.a., the tax benefit of this strategy ends.

Spouse contributions count towards the annual non-concessional contributions limit of $100,000, with eligibility to contribute dependent on the total super balance being below $1.6 million as at 30 June of the prior financial year, not reaching the contribution limit by using the bring forward provision in a prior year ― and if the receiving spouse is over age 67, satisfying the work test.

Pending change to the bring forward rule

Legislation has been introduced to the Australian Parliament proposing to extend the bring forward rule to individuals aged 65 and 66. If passed, this proposal will allow those aged 65 and 66 to bring forward two years’ worth of contributions to make a non-concessional contribution up to $300,000. (correct as at 30 September 2020)

Looking for guidance?

A specialist adviser can help you determine how these changes may be relevant for your circumstances and if they can provide you with more options around your retirement finances.

Interested in learning more?

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Whether you’ve had the same super fund or investment structure in place for some time, your personal circumstances and balance may have changed – which is why it makes sense to review your arrangements. But where do you start? By using our simple guide, we show you five key areas you should consider when comparing options, which can help make it easier to make a more informed choice about your super and determine the most appropriate solution for you.

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