In this article:
- Personal/Voluntary Contributions to super
- Earlier Access to Downsizer Contributions
- Super Guarantee to apply from the first dollar
- SMSFs & Residency
Shirley Schaefer, Superannuation Partner at BDO in South Australia says continual changes to superannuation by the federal government over a number of years made it a complex area.
“A large proportion of Australians understandably have difficulty making sense of the contribution and access rules,” Schaefer says
“The 2021 Federal Budget has gone some of the way in removing these complexities, but more could be done.”
Schaefer also notes that most of the proposed measures require changes to legislation, so will be subject to a lengthy process and are not expected to come into effect until July 1, 2022.
The budget proposals allow older fund members to continue to contribute to their super, allow members working on a part-time basis to have superannuation paid for them on the whole of their wages, and relax the residency rules for Self-Managed Superannuation Funds (SMSFs).
Schaefer explains the measures in further detail and what they could mean for your retirement nest egg:
Personal/Voluntary Contributions to super
Currently, if you are between the ages of 67 and 74 years, you are required to meet a ‘work test’ to be able to make any voluntary contributions to super. Voluntary superannuation contributions include:
- Salary sacrifice contributions
- Personal contributions for which a tax deduction is claimed (concessional contributions)
- After-tax contributions (non concessional contributions)
The work test is measured as the individual having worked at least 40 hours in a period of 30 consecutive days in the financial year in which the contributions are made.
From July 1, 2022, Australians will no longer need to meet the work test to be eligible to make non-concessional superannuation contributions and receive salary sacrifice contributions.
Individuals aged 67-74 years will still have to meet the work test to make personal deductible contributions.
“This measure will allow older Australians to top up their super from salary and wages or personal resources beyond the age of 67, even after they have retired,” says Schaefer.
Earlier Access to Downsizer Contributions
From July 1, 2022, Australians aged over 60 years will be eligible to make downsizer contributions – previously limited to Australians over age 65.
“The government hopes to incentivise older Australians to make the move to a smaller home sooner, helping to free up housing stock and create movement in the property market”, says Schaefer.
Originally introduced in the 2018 Budget, downsizer contributions allow eligible Australians to use the proceeds from the sale of their home, if owned for at least 10 years, to be used to make a one-off superannuation contribution of up to $300,000.
“While it sounds like a positive move, this measure may not actually have a large impact on superannuation balances, as Australians aged 60 to 65 years can in fact already make after-tax contributions equivalent to the downsizer contributions”, notes Schaefer.
Super Guarantee to apply from the first dollar
Employers are currently not obligated to make superannuation guarantee contributions for any employees who earn less than $450 in a calendar month.
The Government is proposing to remove the $450 per month minimum income threshold, ensuring that most low-income earners will no longer miss out on accruing superannuation for their retirement
Schaefer says that, as per the Retirement Income Review, an estimated 300,000 individuals would be eligible to receive these superannuation guarantee payments were the revised rules to come into effect today.
“Unsurprisingly, 63 per cent of those who would be eligible for these payments are women which means, if implemented, this measure is a win for equality in the superannuation system”, she says.
SMSFs & Residency
“Where SMSF members are absent from Australia for extended periods of time, they have long been disadvantaged from an income tax perspective”, says Schaefer.
In this budget, the Government proposes to relax the rules such that the SMSF and members would only need to meet two rules to be eligible for concessional tax treatment:
- The fund must be established in Australia or hold an asset in Australia
- The members cannot be temporarily absent from Australia for more than five years
Schaefer says “this will enable SMSF members to be absent from Australia for longer than is currently the case, whether for work, education or due to COVID-19. It will also enable overseas members to continue to contribute to their Australian SMSF without penalty within that five year period.”
For further detail on the full range of key measures, download BDO’s budget report. Prepared by our team of experts, the analysis covers the key impacts of the 2021 Federal Budget and what they mean for you.
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