Cooper Partners’ Sanderson uses an example to show how it will work: Joe, 68, who hasn’t worked for years, recently received an $80,000 inheritance from his late mother.
He wants to contribute this to his super fund, where the balance is $480,000, well below the super limit of $1.7 million. The new rules mean you can do this from July 1, without having to comply with proof of work.
New contribution opportunities
Eligibility to make non-concessional (after-tax) contributions under the rollover rules will extend from age 67 at the beginning of a financial year to those under age 75 without having to meet the work test.
These are super contributions made from after-tax income or savings.
The limits are:
- Three times the annual cap on non-concessional contributions over three years (or $330,000) if the total super balance as of June 30 of the previous fiscal year is less than $1.48 million.
- Double the annual limit over two years (or $220,000) if the total super balance as of June 30 of the previous fiscal year is greater than $1.48 million and less than $1.59 million.
- $110,000 annual cap if total super balance as of June 30 of the previous fiscal year is between $1.59 million and $1.70 million.
Those with a super balance of $1.7 million or more are not eligible.
A person must be age 74 or younger at some point during the tax year to be eligible to activate the advancement rule.
Someone who is 74 years old on July 1 of the applicable year must make a contribution within 28 days of the end of the month in which they turn 75 to use the cap.
“The rule is that they must be under 75 at some point during the tax year,” says Sanderson.
Jenneke Mills, manager of technical services at financial advisory group MLC, says this could also be helpful when couples have big differences in their super balances.
A spouse who expects to exceed their limit could collect a sum and contribute this to their partner’s account to maximize the combined super savings.
For example, Rob and his wife Carol are 68 years old. As of June 30, Rob’s super savings are $1.75 million and Carol’s is $850,000.
To match his benefits and maximize the transfer balance cap benefit, Rob could pay $330,000 from his account to contribute to Carol’s, Sanderson says.
The result would be that Rob’s super is $1.42 million and Carol’s $1.18 million.
Mills says the new contribution rules could “also help generate big savings after the sale of stocks, investment properties, other assets, or receiving an inheritance.”
Off-super asset sales could trigger a capital gains tax, Sanderson warns.
The eligible age for downsizers to top up their super with a $300,000 contribution from the sale of their home has been lowered from 65 to 60.
Additionally, individuals over the age of 75 and those who have reached the upper retirement threshold of $1.7 million are eligible.
“Eligibility for the downsizer contribution is not dependent on age or total super balance,” adds Sanderson. “A 99-year-old with $100 million in their super can use it, as long as other criteria are met.”
The benefit is available when an individual or their spouse sells property they have owned for 10 years or more and was once their primary residence.
Contributions must be made within 90 days of settlement, which means it is important to seek legal advice on the terms of the contract.
For example, Carol has just sold a property that she bought in 1986 before she married Rob.
She lived there alone for two years before marriage and five years after marriage before buying a new house.
Carol will be able to claim capital gains tax exemption on the primary residence for seven of the 36 years of ownership.
Proceeds from the sale can be contributed to pension under the downsizing provisions for both Carol and Rob, regardless of their total pension.
The couple can make use of the downsizer contribution even if they have already maxed out their non-concessional contribution caps.
That means they can use Rob’s super withdrawal for Carol’s, as well as the downsizing contribution, which would result in new super balances of $1.72 million and $1.48 million.
Mills says that owners of multiple properties should consider what type of contribution should be used to maximize their super investments.
“Consider a non-concessional contribution to preserve the reduction opportunity for another time,” she says.
“Size reducer contributions are not subject to a proof of work or upper age limit, so waiting to use them until the sale of an eligible property in the future can help maximize total contributions. ”.
The policy is intended to encourage landlords to free up larger homes that are better used by younger families, the federal government says.
National Seniors Australia (NSA) surveys show that 11 per cent of people who downsized in the last five years were between the ages of 50 and 64.
The NSA says that those with little or no pension will benefit because they are still likely to get the full age pension after the reduction, while those who are not eligible for the proven pension will be able to contribute more despite having reached their limits. of contribution.
The scheme has exceeded expectations because most Australians want to stay at home.
Boost for first time home buyers
Around 4,200 people used the provision during the scheme’s first year, contributing $1 billion to retirement.
Its popularity is expected to be fueled by rising property values, the time and cost of maintaining a large property when children run away from home, and the trend to spend more time in country, country or beach houses. , particularly after the pandemic.
The maximum amount of voluntary contributions made to the supermarket that can be released under the First Home Super Saver (FHSS) scheme will increase from $30,000 to $50,000.
Annual contributions are still capped at $15,000.
The scheme aims to allow home buyers to save a deposit faster using the preferential tax treatment of super.
Earnings within the fund are taxed at the favorable rate of 15 percent compared to the marginal tax rate which could be as high as 47 percent.
For those earning less than $250,000 a year, voluntary supercontributions are taxed at 15 percent, meaning $10,000 of pre-tax income becomes $8,500 for a deposit, analysis from Finder, a comparison website, shows. .
By comparison, a non-grocery saver paying income tax at a marginal rate of 32.5 percent plus a 2 percent Medicare levy would save just $6,550.
For example, Rob and Carol’s 26-year-old son, John, is saving for a house deposit.
John still lives at home with his parents, earns $65,000 (plus super) a year, and has the ability to make additional annual contributions on top of his 10 percent super guarantee of $12,000, a tax savings of about $2,340.
You’ll eventually be able to access up to $50,000 of super at your marginal tax rate, minus a 30 percent tax offset. After-tax contributions are not subject to additional taxes.
“It only applies to voluntary contributions, not the retirement guarantee,” adds Sanderson.
“The benefit John gets will generally depend on his income at retirement,” she says.
“If it’s substantially higher, then the tax benefit received during the period would be reduced, but overall it would be to his advantage to undertake this strategy,” he says.
The benefits of the scheme include:
- Higher net amounts invested due to tax savings.
- Profits are only taxed at 15 percent instead of the marginal rate if they are outside the supermarket.
- Disciplined savings target. “Savings not used for a deposit should remain in retirement for the member until he or she retires, currently at age 60,” says Sanderson.