Changes to superannuation from 1 July
On the 1st of July 2019, a range of government changes to superannuation came into effect. Although announced some time ago, they are now applicable and can be utilised according to their specific terms.
There are two changes that are important to understand as they could benefit you.
No work test in first year of retirement
Before the 1st of July, if you were aged between 65 and 74, you had to meet the work test in order to make a voluntary after-tax contribution to your super. The test requires that you work at least 40 hours within a 30-day period in the financial year that you make the contribution.
An exemption to this work test is now available and is intended to give people with lower superannuation balances more time to make contributions to their super after leaving the workforce.
If you are newly retired and between the ages of 65 and 74, you will now be able to make voluntary contributions to your superannuation without having to meet the work test requirements. This exemption is for the first year of retirement only and you must have had a total super balance less than $300,000 at the end of the previous financial year.
These contributions will still be subject to the non-concessional $100,000 cap but will enable people with a lower super balance to give an extra boost to their funds. It’s important to note that the exemption must be used in the year after retirement and can only be used once.
After the initial year of exemption, the standard work test rules will apply, and you will need to work for at least 40 hours within a 30-day period to be able to make after-tax contributions.
Catch-up concessional contributions
The catch-up concessional contributions rule was implemented on the 1st July 2018, but the new financial year 2019/20 is the first year where you can utilise the new rules.
A concessional contribution is a contribution for which you can claim a tax deduction and includes superannuation guarantee (SG) paid by employers, salary sacrifice or lump sum contributions for which personal tax deductions are claimed.
Under these rules, if your super account balance is less than $500,000 on 30th June of the previous financial year, you can carry forward any amount from your concessional contribution cap that you didn’t use in previous financial years. The annual concessional contribution cap is still $25,000, but any unused portion can roll over to the next year.
The carry forward period is for a maximum of five years and is designed to offer additional flexibility to those wanting to get additional funds into super and claim a tax deduction. The rule may assist those with breaks in employment to make ‘catch up’ contributions when they return to work. It could also be useful to those who are likely to have a high taxable income in one year, for example due to a capital gain made from the sale of an investment property, as they are able to make a large concessional contribution in that year and claim a large deduction to offset the tax.
To find out more about the changes to superannuation contact our team today.