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What super changes should you know from 1 July?

The start of a financial year always brings new rules for super funds. For the 2020/21 financial year, two changes are the abolition of the work test for anyone aged 66 and 67 wishing to make personal non-concessional contributions (NCCs), and an extension of spouse contributions from age 70 to 75.

The continuation of the 50% reduction in the minimum pension rate for account-based pensions due to the COVID–19 pandemic will apply for the whole year. We are still waiting for the change that will allow access to the bring forward rule.

Let's look at some rules, new and not-so-new, in more detail.

Abolition of the work test to age 67

Until 30 June 2020 there was no need for a member to satisfy a work test for personal concessional and NCCs before reaching age 65. However, once they reached 65 in the financial year a work test of 40 hours in 30 consecutive days was required to be met at some time during that year and prior to the contribution being accepted. Providing the work test is met in a financial year, personal concessional or NCCs can be accepted up to 28 days after the month in which the person reaches age 75. But there are exceptions to the work test where personal contributions are made in the year after ceasing work or for purposes of downsizer contributions.

From 1 July 2020 it is now possible to make personal contributions without needing to satisfy a work test until age 67. In the financial year the member reaches age 67, personal contributions can be made prior to reaching that age but a work test must be met at any time during the financial year before the contribution is made.

Ceasing work contributions

Ceasing work contributions are permitted on a once-only basis after the member has reached 67, previously age 65. Personal contributions can be made on a once-off basis in the financial year after work has ceased and the person has a total super balance of less than $300,000 on 30 June in the previous financial year. These contributions can be accepted by the fund up to 28 days after the month in which the person reaches 75.

Downsizer contributions

Downsizer contributions can made after the sale of a person’s main residence, as described for capital gains tax (CGT) purposes, which they have owned for at least 10 years. To be eligible the person must be 65 or older and a contribution of up to $300,000 must be made within 90 days of the sale. The person’s spouse may also be eligible to contribute up to $300,000 if they are 65 or older. There is no upper age limit applying to downsizer contributions or any work test that applies.

Employer contributions

When it comes to employer contributions for anyone 65 or older, there are no work tests or age limits for compulsory employer contributions such as superannuation guarantee contributions or those made under an industrial award. But a work test must be met if the employee wishes to salary sacrifice to super and they are unable to be made 28 days after the month in which the employee reached age 75.

Access to the bring-forward rules from 1 July 2020

It is possible for anyone who is under 65 to trigger the bring-forward rule which allows up to two years of NCCs to be made over a fixed period. The period commences from the year in which the person makes an NCC that is greater than the standard annual amount of $100,000.

Whether a person has access to triggering the bring-forward rule depends on their total superannuation balance on 30 June in the previous financial year. For anyone with a total super balance of less than $1.4 million they are able to bring forward up to two years' standard NCC and anyone with a total super balance of between $1.4 and $1.5 million is able to bring forward up to one year’s standard NCC. Once a person has a total super balance of between $1.5 and $1.6 million only the standard NCC is available and there is no bring forward amount. With a total super balance of $1.6 million or more, it is not possible to make a NCC without incurring a tax and interest rate penalty.


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It was announced in the 2018 Federal Budget that the bring-forward rules would be amended to apply to anyone who was under 67 on 1 July in a financial year. However, the bill has a way to go prior to becoming law.

Those fund members in the 65-66 age bracket are in a bit of a dilemma until the time the passage of the legislation is clear. From a practical point of view, it is only those members with a total superannuation balance of less than $1.5 million as at 30 June 2019 or 30 June 2020 who will be impacted if they wish to maximise NCCs by using the bring-forward rule.

Spouse contributions and the tax offset

It is possible to make contributions for an eligible spouse which are treated as NCCs and counted against the spouse’s NCC cap. If the spouse has an adjusted income of less than $37,000 it is possible for the contributor spouse to receive a tax offset of up to 18% on the first $3000 of any non-concessional spouse contribution. The tax offset amount phases out between $37,000 and $40,000 on a dollar for dollar basis.

Until 30 June 2020, it was only possible to make spouse contributions up until age 70. Between age 65 and 70 the spouse was required to meet the work test of 40 hours in 30 consecutive days for the year in which the contribution was made. However, from 1 July 2020 this has now been extended to apply for spouse contributions made between 67, and 28 days in the month after the spouse reaches 75, which puts it in line with other personal superannuation contributions. The work test must be met prior to spouse contributions being made to the fund.

Reduction in minimum pensions for account-based pensions

In March 2020, the government amended the minimum percentage required to be paid for account-based pensions by 50%. This meant that account-based pensions, transition to retirement pensions and market-linked income streams would have their minimum pension percentage reduced by 50% for the 2019/20 and 2020/21 financial years.

Here are the reduced percentages that apply:

What next?

The extension of the work test exemptions to age 67 for personal superannuation contributions has been a bonus in these difficult times as well as the extension of the age at which spouse contributions can be made. However, we wait with anticipation for the extension of the bring forward rule to age 67 to become law when parliament resumes in the next few months.

 

Case study examples of each of these super regulations is contained in this attached longer version.

 

Graeme Colley is the Executive Manager, SMSF Technical and Private Wealth at SuperConcepts, a sponsor of Firstlinks. This article is for general information purposes only and does not consider any individual’s investment objectives.

For more articles and papers from SuperConcepts, please click here.

 

14 Comments
Keith Molloy
July 23, 2020

I had already drawn down my F/Y 19/20 pension lump sum before the Change to Pension Drawdown rates were published. I realise I cannot pay back the overdrawn amount but can I carry the excess forward to F/Y20/21.
Thanks.

Graeme Colley
July 24, 2020

Hi Keith

Unfortunately, once a pension is paid to you in a financial year you are unable to carry forward any excess as the amount withdrawn counts in the year in which it is made.

The only exception is where you have paid less than the minimum amount for an account based pension. If the underpayment is less than 1/12th of the minimum then you can make up the shortfall on a once only basis once it has been discovered. The top up will usually be made in the financial year after the shortfall has occurred and will count against the previous year minimum.

Henry
July 21, 2020

Thank you for your article Graeme. Re contributions in the tax year you reach 67 - your example mentions September 2019, do you mean September 2020?
I'm still unsure about your July 16th reply. Can you please confirm that to make a Concessional Contribution in FY20-21, with say a 67th birthday on the 1st Dec 20, no work test is required up to the 30 Nov but would be after? Also there is no limit on the person's super balance that stops a concessional contribution being permitted without the work test, prior to the 30 Nov? Finally is it law now, i.e can I make the contribution tomorrow?

Graeme Colley
July 24, 2020

Hello Henry
My apologies, you are correct as the 'first week of September 2019' should have been 'first week of September 2020'. Must have been missed in the final editing.
Just to confirm how the work test operates. If you turn 67 on 1 December 2020 you can make a concessional contribution prior to that time without the need to meet the work test. But for any contributions you make after you have reached age 67 you must have met the work test at any time in the 2020/21 financial year and before you make those contributions.
For example, if you have worked at least 40 hours in 30 consecutive days in September 2020 and are 67 on 1 December 2020 you will have met the work test and could make concessional contributions after your 67th birthday.
That's correct about making concessional contributions. The amount of concessional contributions does not depend on the amount you have in superannuation. In contrast, non-concessional contributions are limited by the amount you have in super on the previous 30 June. This is referred to as your total superannuation balance.
The change to moving the work test to age 67 became law in May 2020 and applies to contributions made from 1 July 2020. Here is a link to the amendment to the Superannuation Industry (Supervision) Regulations:
https://www.legislation.gov.au/Details/F2020L00645

Henry
July 26, 2020

Thank you for replying Graeme.

Philip Kilvington
July 21, 2020

Can one still contribute to super if 67 but not yet 68 and have a balance in the accumulation account of super in excess of $1.6m. Assume still in saving mode and not rolled over to pension mode yet.

Graeme Colley
July 24, 2020

Hello Philip

If you can contribute after you reach age 67 and have a total super balance in all super funds on 30 June in the previous financial year of at least $1.6 million you will not be able to make non-concessional contributions to super. However, you may be able to make concessional (tax deductible) contributions to super if you qualify by meeting the work test. Any concessional contributions you make up to the amount of your concessional contribution cap is not restricted by the total amount you have in super.

Robert
July 20, 2020

The new Work Test rules for super contributions are contained in the updated regulations in the Federal Register of Legislation (www.legislation.gov.au), effective from 1 July 2020. It appears that there is now no Work Test requirement for contributions up to age 67 but meeting the Work Test is required for contributions after age 67. Thus, in the financial year of turning 67, no Work Test is required if the contribution is made before the 67th birthday, but it is required after that birthday.

Graeme Colley
July 16, 2020

Hi Simon

May be the word 'prior' could have been 'before' and it could read, 'personal contributions can be made prior to reaching that age but a work test must be met at any time during the financial year before the contribution is made'

Graeme
July 16, 2020

The amended wording doesn't make it any clearer to me. The example, however, seems quite straightforward, so I'll run with that. Hence I can make a contribution before I turn 67 without needing to meet the work test. Full stop.

Graeme Colley
July 24, 2020

Just to confirm how the work test operates. If you turn 67 on 1 December 2020 you can make a concessional contribution prior to that time without the need to meet the work test which confirms your understanding. But for any contributions you make after you have reached age 67 you must have met the work test at any time in the 2020/21 financial year and before you make those contributions.
For example, if you have worked at least 40 hours in 30 consecutive days in September 2020 and are 67 on 1 December 2020 you will have met the work test and could make concessional contributions after your 67th birthday.

Jane
July 16, 2020

I am also confused on the abolition of the work test for 66 year olds contributing to super.
Does the work test need to be passed at any time during the financial year for a 66 year old to make a super contribution?
Has this legislative passed through both houses and received the Royal Assent?

Simon
July 16, 2020

Re "Abolition of the work test to age 67", your words and your Case study example don't seem to match.

You say "From 1 July 2020 ... In the financial year the member reaches age 67, personal contributions can be made prior to reaching that age but a work test must be met at any time during the financial year prior to the contribution being made." This implies to me that no matter when the contribution is made during the year they turn 67, a work test must have been met in the previous financial year. (maybe some words have been omitted?)

yet your example says "It is possible for him to make concessional and NCCs to his super fund without the need to meet the work test prior to his 67th birthday. But he will only be able to make contributions after he reaches 67 if he has worked ..." which implies to me that the work test is not needed if you contribute before your 67th birthday.

can you please clarify this for the year in which one turns 67. thanks.

Graham Hand
July 16, 2020

Thanks for your question, we've asked Graeme to claify. GH

 

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