We are pleased to provide our superannuation year-end planning guide for 2021.
Contribution caps limit the amount that can be contributed to superannuation for a member each financial year.
Non-concessional (after tax) contributions are limited to $100,000 for the 2021 financial year and concessional (before tax) contributions are limited to $25,000.
Members under 65 years of age have the option of contributing up to $300,000 over a three-year period depending on their total superannuation balance (TSB) at 30 June 2020. The ability to do this begins phasing out once the member has a TSB of over $1.4 million. No non-concessional contributions can be made if TSB is greater than $1.6 million. The age to take advantage of the bring-forward option had been flagged to be increased to 67 but the legislation for this has not been passed so remains at 65.
If making large superannuation contributions, care should be taken to ensure you do not exceed the contribution caps as this may result in extra fees and taxes.
Contributions are included in the cap for a financial year if they are received in your fund’s bank account by 30 June. When paying a contribution via a clearing house, the contribution is not deemed to have been “made” until it is received by the superannuation fund. Payment to the clearing house in itself is not sufficient, therefore extra time may need to be factored in to ensure this occurs prior to 30 June.
If you wish to claim a tax deduction for personal contributions, you must complete and lodge a notice of intent with your fund and have this notice acknowledged (in writing) by your fund.
From 1 July 2021 the annual contribution caps are increasing to $27,500 for concessional contributions and $110,000 for non-concessional contributions. The TSB limits are also increasing in line with these with restrictions starting at $1.48 million.
Carry-forward concessional contributions of unused caps over five years
If you don’t utilise your full concessional cap in a particular year the unused portion is carried forward for up to five years. This applies to contributions from the 2018-19 year onwards. However, to access the unused carried forward contributions in any year, you must have had a total superannuation balance of less than $500,000 at 30 June the year prior. So, if you didn’t use your full concessional contribution limit in the 2019 and 2020 years and you had a total superannuation balance of less than $500,000 at 30 June 2020 you may be able to make concessional contributions this year of more than $25,000. Amounts carried forward that have not been used after five years will expire.
People aged between 67 to 74 years old, need to satisfy a work test to be able to make a contribution to superannuation. This requirement is to work at least 40 hours during a consecutive 30-day period. The age requiring this was raised from 65 to 67 from 1 July 2020.
From 1 July 2019 a work test exemption also applies where an individual:
- Satisfied the work test in the previous financial year;
- Has a TSB of less than $300,000 at the end of the previous financial year; and
- Has not previously utilised the work test exemption.
After age 75 only mandated employer contributions, which include superannuation guarantee and payments required under an industrial award or agreement, can be accepted by a superannuation fund.
As part of the 2021/2022 federal budget, it was announced that the work test would be removed from 1 July 2022 for some types of contributions for those aged between 67 to 74 years old. It is proposed to remove work test requirements for Non-concessional contributions and salary scarified superannuation contributions. An individual will still need to meet the work test to claim a deduction for personal contributions. This measure has yet to be legislated.
Downsizer super contribution
From 1 July 2018 if you are 65 years or older you may be able eligible to make a downsizer superannuation contribution (DSC) to your superannuation fund when selling your home. Provided all eligibility requirements are met an individual could contribute up to $300,000 of the proceeds of the sale of their family home to their superannuation fund. The limit is per person, meaning a couple could contribute up to $600,000.
The main eligibility requirements to make a DSC are:
- 65 years of age or older at the time of the contribution (there is no maximum age)
- The home has been owned by the individual or their spouse for at least 10 years
- The home being sold must be exempt (or partially exempt from capital gains tax (CGT) under the main residence exemption (or would still be entitled if pre-CGT).
These contributions do not count towards any other contribution caps and are not restricted by the total superannuation balance or work tests.
It was recently announced that the eligibility age is to be reduced to 60 from 1 July 2022 but this is yet to be legislated.
Drawing superannuation pensions
If you are in pension phase, you need to ensure the minimum pension has been paid to you for this financial year. Where these requirements have not been met, your pension will be deemed to have ceased and your fund will be subject to 15% tax on the earnings of your pension investments, rather than those earnings being tax free.
Due to Covid-19 and the subsequent downturn in financial markets, the Government has reduced the minimum annual pension requirement by 50% for the 2021 financial year and also announced that this is to be extended into the 2022 financial year.
Drawing superannuation lump sums
Once you reach 60 years of age most lump sums from superannuation are tax free. However, before age 60 any lump sums that include a taxable component can be taxable. The taxable component includes the tax deductible contributions plus any income that has accumulated on your superannuation benefit. For the year ending 30 June 2021, no tax is payable on taxable amounts of up to $215,000, in total, you receive prior to age 60.
Since the introduction of Transfer Balance Cap, there also may be opportunities for the use of partial commutations/ lump sums from pension accounts for those that are withdrawing greater than their minimum pension.
Transfer balance cap (TBC)
Effective 1 July 2017, the Government introduced a $1.6 million cap on the total amount that can be transferred into the tax free retirement phase for account-based pensions.
The general transfer balance cap will be indexed from 1 July 2021 to $1.7 million. This indexation will be applied proportionally where a member is a retirement phase income stream recipient, but has not at any time met or exceeded their cap.
If you earn less than $56,112 and make a non-concessional contribution, then you may be eligible for a Government co-contribution of up to $500. Conditions apply as do the usual contribution rules.
The current rate for superannuation guarantee of 9.5% is increasing to 10% from 1 July 2021. It is important that employers understand their obligations and options regarding these payments in order to comply with the requirements. Further information on this can be found by clicking here.
If you have any questions, require assistance or would like further clarification with any aspect of your end of year superannuation tax planning, please contact our Superannuation Specialists to discuss your particular requirements in more detail or on the form below: