Significant advice opportunities have been created, particularly for older clients, as a result of the passing of 2021 Federal Budget super proposals.
We summarise the changes to help you navigate the new rules, as well as highlight key advice opportunities to maximise client outcomes in 2022 and beyond.
The changes provide significant strategic advice opportunities from 1 July 2022, particularly in relation
to older clients and super contribution strategies. The legislated changes include:
▪ removal of the work-test requirement for non-concessional contributions (NCCs) and salary sacrifice
contributions, for individuals aged between 67 and 752
▪ extending eligibility to make NCCs under the bring-forward rule to individuals aged under 75 at the
beginning of the financial year
▪ extending eligibility to make downsizer contributions to those age 60 or over, and
▪ an increase to the maximum amount of voluntary contributions made to super that can be released
under the First Home Super Saver Scheme (FHSSS).
The amendments may provide a range of new advice opportunities for clients who thought the super door was permanently closed to them. The strategic opportunities surpass simply boosting an individual’s super balance.
Check out my latest Retirement & Money podcast episode for more details around potential opportunities for you. These changes have been coming since Budget Night 2021, but now we can act on them from July 1st 2022.
Rob Laurie.
Financial Adviser
Wealth Factory
This is Rob Laurie and welcome to retirement and money where we aim to improve the quality of your retirement. Legislation has finally been passed to give effect to several of the key super changes proposed in the 21 federal budget. The changes provide significant strategic advice opportunities from one July 2022, particularly in relation to older clients and super contribution strategies. The legislative changes include removal of the work test requirement for non concessional contributions and salary sacrifice contributions for individuals aged between 67 and 75. Extending eligibility to make non concessional contributions under the bring forward rule to individuals aged under 75. At the beginning of the financial year, extending eligibility to make downsizer contributions to those age 60 or over instead of a 65 as it currently is, and an increase to the maximum amount of voluntary contributions made to super that can be released under the first home supersaver scheme. The amendments may provide a range of new opportunities for clients who thought the super door was permanently close to them. Because of age basically, if you weren’t making the work test, until recently, it was 65. Now at 67, you couldn’t put any extra money into super want to over that age. Now that opens that door back up for a period of time depending on your age. So the removal of the work test. So this means that the work tests will no longer need to be met by individuals aged between 67 and 75. When making salary sacrifice contributions and personal contributions, the work tests will still need to be met to claim a tax deduction for personal contributions. Changes to the bring forward, non concessional cap eligibility so individuals aged less than 75. At the prior one July, will be eligible to access the non concessional cap bring forward arrangement, subject to meeting all relevant eligible eligibility criteria. individual’s age less than 75 at the prior first July, will be eligible to access the non concessional cap bring forward arrangement, subject to meeting all relevant eligibility criteria. So the opportunity here is cashing out and re contributing for one of two main reasons. The first one is to cash out and contribute to a younger spouse’s account to maximise the age pension. This is if the younger spouse’s account is still in Super accumulation phase, and they are not of age pension eligibility age. The second reason would be to withdraw and re contribute to your own funds to change the taxable component and the tax free component of your superannuation or retirement accounts for estate planning purposes. When your retirement accounts transferred to the beneficiaries as a result of your death. If the beneficiary is a non dependent under taxation law, which an adult child who’s not financially dependent on you usually would book they do pay tax on the amount of proceeds as mentioned in the previous podcast. So by taking money out of the Superfund and re contributing, it can reduce the taxable component and save some tax for your beneficiaries. The extension of the downsizer contribution to age 60, this used to be age 65, which meant if you were over 65, and you chose to downsize your home for retirement, you didn’t need such a large home, you were eligible contribute a lump sum of $300,000 in superannuation, and that is an addition to the non concessional cap. So potentially as a result, if you downsize your home and you hadn’t used up any of your non concessional cap before, you can potentially from the first July contribute up to $630,000 per fund. So if it’s a couple each fund subject to other caps
in one go. Now the first home Super Saver scheme. So they’ve increased the release amount on this. This is generally for first least for first time buyers dealing for younger people. Currently, they allowed up to $30,000 of voluntary super contributions to be released and used as a deposit for the first time. So basically, it meant that younger people could contribute into a super fund and get access to that money when they wanted to buy a house, which does have its merits. What they’ve changed on this is the amount will increase up to $50,000. The limit on the contributions that can be made annually will remain at $15,000 per year. So there’s a way to make access to buying first home, I guess, a little bit easier. In theory, it is subject to the volatility of their super funds, most young people will have a higher risk or asset allocation, more bias towards growth assets, then, an older Superfund. And as a result, depending on when they choose to buy their house, it may have a bigger impact on their super balance, but generally increasing it because housing prices are increasing, particularly since COVID. The more that they can pull out the bigger deposit they have, will probably keep fueling the housing price rise, I guess. That’s most of the changes that have been passed. These were passed on the 10th of February 2022. And they are coming into effect from the first of July. So for some older clients which are large, taxable component and sober, you may benefit from getting some advice on that. If you have the intention of passing on some superannuation assets as an inheritance, certainly some advantages around it. If you’re thinking of downsizing a home, but we’re waiting to age 65 If you’re aged between 60 and 64, and you’re looking at doing it from later in the year is potentially going to be open to you looking at selling and eligible property or can even be an investment property, it doesn’t necessarily have to be downsized. It doesn’t need to be your own home that you’ve lived in for the downsizer contribution. But if you’re over 67 and want to sell my investment property, now you can potentially do that and contribute some funds into the beneficial tax environment that super superannuation provides. Thanks for listening and I hope you enjoyed this episode. And remember, you can’t go back and change the beginning, but you can start where you are and change the ending. retirement money is brought to you by wealth factory. Wealth factory provides specialist financial advice to traders and business owners to ensure their retirement dreams are delivered. For more information go to wealth factory.com.au wealth factory is an authorised representative of lifespan financial planning limited AFSL 229892. The purpose of this podcast is provide factual information only. It is not intended to be financial advice. However any advice provided is general in nature and does not take into account your objectives, financial situation or needs. You should consider what the advice is suitable for you and your personal circumstances. Please speak to your financial advisor before making any financial decisions.