In Australia, a superannuation contribution or super contribution is a contribution by an employer to an employee’s retirement smsf pension benefit. This scheme is for all employed Australians to help them to build up and save for retirement. The employee can withdraw the benefits of the funds when he reaches the proper age and is superannuated.
An employee who is of the age of more than 18 years, whether working part-time or full-time, temporary or permanent resident, is eligible for a super guarantee contribution. The superannuation contribution is not from your salary. But it is an additional amount payable to the employees compulsorily as per the norms of the Australian government.
The legislation for the superannuation contribution changes from time to time. The Australian government indicates these changes in federal budgets. In the financial year 2022-23, these changes are limited than usual. These changes present opportunities to improve the future retirement savings of an individual.
The introduction of a lower minimum age for the home downsizer rules, the elimination of the work test requirements, the elimination of the $450 monthly income ceiling, and an increase in the rate of super guarantee contributions make retirement benefits more flexible.
Let’s discuss the superannuation contribution changes in 2022. According to the federal budget by the Parliament of Australia following are the changes.
Superannuation contribution changes 1 July 2022 has abolished the work test for an individual. But for this relaxation, the individual must be of age between 67 to 74 and wishes to make a non-concessional voluntary super contribution.
However, if the individual wishes to claim super contribution deductions, the work test will continue to apply. An individual who is younger than 18 years must have worked for 30 hours a week ( other employees 40 hours a week ) covered by a workplace agreement.
From 1 July 2022, the limit of $450 per month income for contribution to a superannuation guarantee has been removed. As per the super contribution change in 2022, an employer must contribute or pay superannuation payables to an employee whose earnings are less than $450.
From 1 July 2022, the age limit for downsizer contributions has been reduced from 65 to 60 years. The scheme of downsizers grants permission to an eligible person who sells their house to make another to contribute $300000 to their super account, amounting is $300000 each for a couple.
The First Home Super Saver Scheme (FHSSS) increases the maximum releasable amount from $30,000 to $50,000. This limit will be double in the case of a couple, which means their releasable amount will be $100,000 per couple. The annual limit for voluntary contributions to the scheme remains at $15,000 per financial year.
According to new super rules from July 2022, the percentage of Super guarantees will increase from 10% to 10.5%. The rate was 10% on 1 July 2021 and will rise to 11% on 1 July 2023. The rate will constantly increase by 0.5% every year till it reaches 12% on 1 July 2025.
This rate can impact the salary sacrifice arrangements that ensure the additional super guarantee contribution. There is a general cap of $27,500 per annum on concessional contributions.
If an employer fails to increase the super guarantee rate to 10.5%, he will have to pay superannuation guarantee charges levied by the ATO for late or incorrect payment.
From 1 July 2022, there has been an extension to the minimum drawdown rate measure. The minimum drawdown is the amount to be drawn from an account-based pension and similar schemes each year. The government halved the payment in March 2020 due to covid-19, but now by extension, the date for payment will be 30 June 2023.
The term “Non-concessional contributions” refers to after-tax income without a concession by individuals and their partners. If an individual has a superannuation balance of more than $1.7 million, he can not make non-concessional contributions.
With the superannuation changes in 2022 ato, the cut-off age to access the non-concessional contribution bring rules will increase to 75 from 67 years. Although, the threshold limit of the super balance is still the same as applied in previous years.
The bring-forward rules permit an individual to form up to $330,000 in a single year if the total super balance is under $1.48 million or $220,000 if the super balance is less than $1.59 million but more than $1.48 million.
The superannuation contribution changes from 1 July 2022 can be profitable to you, like abolishing the work test requirement and scrapping the $450 per month earnings as a limit for the super guarantee will be helpful for an individual.
The explanation of these benefits is as follows-
According to current superannuation rules, if a person is between the ages of 67 and 74, he can only make voluntary payments to super provided he met the recently retired requirement or worked at least 40 hours over 30 days in a row during the financial year. Before making any contributions to his super, he must pass the work exam.
This work test will only be applicable as of 1 July 2022 if an individual wants to be able to deduct contributions he paid voluntarily to his self managed superannuation fund from his taxes. As on 1 July 2022, if he makes personal deductible contributions, he may satisfy the work test at any point throughout the fiscal year.
It means that contributions he makes through a salary sacrifice plan or any other personal contributions for which he does not claim a tax deduction, such as non-concessional payments, will no longer be subject to the work test.
This change is more beneficial to women who have far less superannuation on retirement than men. The abolition of the minimum income threshold will help them because the average superannuation payout for women is one-third of the payout for men.
The FHSSS now permits the withdrawal of up to $30,000 in voluntary contributions from the super fund to cover a down payment on a new home (plus associated earnings and less tax).
This maximum withdrawal amount will rise to $50,000 on July 1st, 2022. As a result, every eligible person can withdraw an extra $20,000 to use as a down payment for their first house. Other criteria for eligibility are unchanging.
The $15,000 annual maximum contribution that one person may give to the FHSSS each year remains unaltered. It indicates that to obtain the newly enhanced $50,000 maximum, an individual must make voluntary contributions for at least four years.
According to current superannuation rules, an individual is only eligible to make non-concessional contributions that are greater than the annual ceiling of $110,000 if he is younger than 67 on July 1 of that financial year. The “bring-forward” rules for super allow him to contribute up to $330,000 (three years’ worth of non-concessional contributions) in a single year if his total super balance was less than $1.48 million as of the previous financial year’s 30th June or $220,000 if it was between $1.48 million and $1.59 million as of that date.
The age limit to access the “bring forward” rules rises to 75 years old as of 1 July 2022. However, bear in mind that the earlier in this post mentioned total super balance limits are still in effect.
As a result, if the individual is 74 years old on July 1, 2022, and his total superannuation balance is less than $1.48 million, he may be eligible to increase his retirement savings by contributing $330,000 in non-concessionary funds to his SMSF. The individual can contribute in the month in which he turns 75 not later than 28 days after the month.
According to present regulations, a person can only make a home downsizer contribution if he is 65 or older when he makes his super contribution and meet all other eligibility requirements.
The minimum age will drop to 60 as of July 1, 2022. The maximum downsizer contributions that can make are still $300,000 for an individual and $600,000 for a couple, and all other eligibility requirements are unaltered.
If the time is good, the individual can add up to another $630,000 to his superannuation fund in a single year by combining his downsizer contribution with the bring-forward rules. It indicates that a couple would have the once-in-a-lifetime chance to increase retirement savings by $1.26 million.
The rules of superannuation contribution, its changes, and the effects of the changes are very complex to understand. We can help you to plan a better future with the new changes to superannuation contributions.
We can advise you on salary sacrifice, downsizer contributions, and other arrangements. We will do our best to guide you with your retirement benefit planning and other areas of financial planning.
We can familiarize our clients with the new superannuation rules and the changes from 1 July 2022. Please call our professional team to set up an appointment to discuss with you your superannuation if you have any questions or want to learn more about how these opportunities relate to you.
To discuss the timing of a downsizer contribution and the possibility of increasing other contribution options in 2022–2023, please contact our advisers if a person is selling their house and anticipates receiving the sale proceeds close to the end of the fiscal year.