The Morrison government has recently introduced into Parliament the Treasury Laws Amendment (Enhancing superannuation outcomes for Australians and helping Australian businesses invest) Bill 2021, which implements a raft of changes to superannuation contribution rules.
Heffron managing director Meg Heffron said the new bill provides some important details that were missing from the federal budget.
As the work test measures are implemented through regulation changes, which the government intends to make this year, Ms Heffron noted the current bill deals with a component that requires a change to the Income Tax Assessment Act 1997.
“That was the government’s announcement that the work test would still apply if the member wanted to claim a tax deduction for his or her contribution. The bill does this by placing some additional limits on when a member can claim a tax deduction for his or her contributions after age 67,” Ms Heffron said in a recent blog update.
“Importantly, it refers to contributions made between 67 and ‘28 days after the end of the month in which you turn 75’ rather than the member’s 75th birthday. That makes perfect sense – it’s the same language used in the work test at the moment.
“It suggests that when regulations are made to remove the work test, they will do the same – extend the opportunity to make contributions without meeting a work test up until the 28th day of the month after the member’s 75th birthday rather than their birthday itself. It’s what we expected but is useful clarity.”
Interestingly, Ms Heffron said it appears that moving the work test from the superannuation regulations to the Income Tax Assessment Act will get rid of the current requirement to meet the work test before the contribution is made. The new wording in the Income Tax Assessment Act simply requires the work test to be met at any time in the financial year.
“The bill also specifically allows someone meeting the rules often described as the “work test exemption” to claim a tax deduction for their personal contributions,” Ms Heffron noted.
“The work test exemption applies in very limited circumstances: the member must have a total super balance of less than $300,000 at the previous 30 June, have met the work test in the previous year and not used the work test exemption rules before.
“Someone meeting these rules at the moment can make a personal contribution even if they don’t meet the work test this year. From 1 July 2022 (when these changes are scheduled to take place), members will be able to contribute regardless of whether or not they meet the special work test exemption, but they will only be able to claim a tax deduction for it if they meet the work test or work test exemption rules.
“We’ll have to wait until the regulations are released, but if the work test is simply removed from the super rules from 1 July 2022 (as appears likely from these changes), CGT cap contributions and personal injury contributions will be able to be made without meeting a work test.”
Updates on bring forwards
As expected, the new rules also extend to bring forward opportunities up until the year in which the member turns 75. In other words, if a member turns 75 in November 2022, he or she will be able to use the bring-forward rules in 2022-23, according to Ms Heffron.
“Of course, they will be unable to make any voluntary contributions at all after 28 December 2022, so they would need to do so earlier in the year,” she said.
“The legislative change contained in the bill is extremely simple – it replaces ‘67’ with ‘75’. The Explanatory Memorandum specifically states that these amendments aren’t intended to allow people to use caps that they would never have had (i.e. in the years when they turn 76, 77 etc).
“But it’s difficult to see how the current legislation stops this from happening – unless there are other changes still coming to support the government’s intention.
“The change set out in this bill would allow someone with a total super balance of less than $1.48 million at 30 June 2022 who turns 75 in November 2022 to make non-concessional contributions of $330,000 in October 2022. In doing so, they would be using their caps for 2023-24 and 2024-25.”
Downsizer contributions age reduced to 60
For downsizer contributions, the legislation to implement this measure simply replaces 65 with 60 in the sections that define downsizer contributions and provides that the change should take effect from 1 July 2022.
“So, there is no requirement for the member to be over 60 when contracts are exchanged or settlement occurs; it is all about the age at which the contribution is made,” Ms Heffron said.
“Unless other changes are made via regulations, the downsizer contribution will be preserved if it is made at a time when the member is not retired or over 65.
“Previously, this wasn’t a consideration as all superannuation stops being preserved when the member turns 65, and this was the earliest age for a downsizer contribution in any case.”
For the First Home Super Saver Scheme, an amendment of similar lack of complexity increases the maximum amount that can be released under this scheme from $30,000 to $50,000 from 1 July 2022, with all the other rules remaining the same.
29 October 2021