With the new financial year comes a number of superannuation changes. In this article we look at what has changed, including the legislation changes towards the end of the last financial year, and subsequently what has been proposed and is yet to become law.

The changes

Increase to maximum age for using the non-concessional contribution bring forward rule

Status Legislated – Royal Assent received in June 2021
Commencement 1 July 2020

This change was originally announced in the 2019-20 Federal Budget. The amending legislation entered parliament in May 2020 though only became law in June 2021. The start date had retrospective effect from 1 July 2020.

This change increases the maximum age the non-concessional contribution (NCC) bring forward rule can be triggered from the financial year the individual turns 65 to the financial year the individual turns 67.

A key point is that, from an NCC cap perspective, although the bring forward NCC cap can be triggered anytime during the year the individual turns 67, the work test (or work test exemption) must be satisfied for contributions made from age 67. Therefore, where the client doesn’t meet the work test (or work test exemption) in the year the contribution is made, the contribution will need to be made before the client’s 67th birthday.

Work test from age 67

Status Legislated – regulations registered May 2020
Commencement 1 July 2020

This change increases the age at which the work test (or work test exemption) applies from age 65 to age 67. The work test (or work test exemption) must be satisfied to make most voluntary contributions, such as personal, spouse and salary sacrifice contributions.

As noted above, the change to legislation occurred before the measure commenced on 1 July 2020 and is therefore not a recent change. However, it is included here as it is a key change and has been a common question from financial advisers.

Increased CC and NCC caps

Status In force due to indexation
Commencement 1 July 2021

The concessional contribution (CC) cap has increased to $27,500 for 2021-22 due to indexation.

As the NCC cap is equal to four time the CC cap, the NCC cap increased to $110,000 for 2021-22.

Likewise, the NCC caps under the bring forward rule have increased to $220,000 (ie two years cap available) and $330,000 (ie three years cap available) depending on the individual’s circumstances.

An individual’s NCC cap for a year is partly determined by their total superannuation balance (TSB) immediately before the start of the financial year. The TSB thresholds for 2021-22 have also increased as they are a factor of the general transfer balance cap (ie $1.7m for 2021-22, see below) and the NCC cap.

The relevant TSB thresholds and NCC caps for 2021-22 are as follows:

TSB at close of 30 June 2021

NCC cap

Less than $1.48m

$330,000

At least $1.48m and less than $1.59m

$220,000

At least $1.59 and less than $1.7m

$110,000

$1.7m and above

$Nil

As noted earlier, the last year the bring forward rule can be triggered is the year the individual turns 67. In addition, the bring forward rule can’t be triggered again while someone is within an existing bring forward period.

The Non-concessional contribution (NCC) capacity for 2021-22 flowchart is a useful resource to assist in determining a client’s NCC cap for 2021-22.

Halving of minimum pension payments for 2021-22

Status Legislated – June 2021
Commencement 1 July 2021

The halving of the minimum payment for certain income streams was originally legislated to apply to the 2019-20 and 2020-21 years. This has now been extended to 2021-22.

Common income streams covered by the halving of the minimum pension include account based, transition to retirement and market linked (commonly referred to as TAPs) pensions.

Transfer balance cap indexation

Status In force due to indexation
Commencement 1 July 2021

Existing legislation sets out the rules for the indexation of the transfer balance cap. The general transfer balance cap (TBC) increased from $1.6 million to $1.7 million for 2021-22.

Whether someone benefits from indexation and to what degree depends on their circumstances. Individuals will fall into one of the following three categories:

1. No prior TBC account balance

Those who haven’t had a transfer balance account balance prior to 1 July 2021 will benefit from full indexation and will have a transfer balance cap of $1.7 million.

2. TBC partially utilised

Those who have partially utilised their TBC prior to 1 July 2021 will benefit from partial indexation.

The steps for calculating the indexed TBC for 2021-22 are:

  1. Identify the highest ever transfer balance account balance prior to 1 July 2021
  2. Work out the unused cap percentage using the following steps:
    1. Divide the highest ever balance (calculated in a.) from their transfer balance account by $1.6 million
    2. Express this as a percentage, rounded down to the nearest whole per cent
    3. Subtract the result in step ii. above from 100%
  3. Multiply the unused cap percentage calculated above by $100,000
  4. Add the amount from step c. above to $1.6 million

     

3. TBC fully utilised

Individuals who have fully utilised their TBC at any time prior to 1 July 2021 will not benefit from indexation and their transfer balance cap will remain at $1.6 million.

The ATO has advised that individuals will be able to see their indexed transfer balance cap via the MyGov website. Similarly, tax agents will also be able to obtain this information for their clients. The information may not be up to date where a fund is yet to report all transfer balance credits for their members. This is more relevant for members of SMSFs as there can be significant delays in reporting due to their quarterly or annual reporting obligations.

Increase to superannuation guarantee rate to 10%

Status Legislated
Commencement 1 July 2021

Although the increase to the superannuation guarantee (SG) rate from 9.5% to 10% for 2021-22 has been legislated for some time it is important to be aware of this change.

The following future increases are also legislated:

Year

SG rate - % of ordinary time earnings

2022-23

10.50

2023-24

11.00

2024-25

11.50

2025-26 and later years

12.00

 

Removal of excess concessional contributions charge

Status Legislated – Royal Assent received in June 2021
Commencement 1 July 2021

Up until the 2020-21 financial year, the main implications of exceeding the concessional contributions cap included:

  1. The excess was included in the individual’s assessable income and a tax offset equal to 15% of the excess contributions (equivalent to the tax paid on these contributions) applied.
  2. The excess concessional contributions charge (ECCC) was calculated on the additional tax calculated in 1 above from 1 July of the year the contributions are made. The ECCC rate is the 90-day Bank Accepted Bills rate plus an uplift factor of 3%.
  3. Any excess concessional contributions not released via the ATO process also count towards the NCC cap.

Legislation has been passed to remove the ECCC (ie implication 2 above) for excess concessional contributions made from 2021-22. The ECCC will continue to apply to excess concessional contributions made in the 2020-21 and earlier years.

COVID-19 re-contributions

Status Legislated – Royal Assent received in June 2021
Commencement 1 July 2021

A new contribution type known as the COVID-19 re-contribution has been introduced to give people who have accessed their superannuation using the COVID-19 compassionate grounds condition of release in 2019-20 and/or 2020-21 the ability re-contribute these amounts to superannuation without counting towards the usual contribution caps (eg NCC cap).

The amount that can be contributed is limited to the amount withdrawn under the COVID-19 compassionate grounds condition of release.

This ability to contribute commences on 1 July 2021 and ends on 30 June 2030. Individuals choosing to make this contribution must provide the fund with the approved ATO election form with or before the contribution is made.

SMSF membership up to 6 members

Status Legislated – Royal Assent received in June 2021
Commencement 1 July 2021

The law has been amended to allow SMSFs and small APRA funds (also referred to as SAFs) to have up to 6 members from 1 July 2021. The change is aimed at providing additional choice and flexibility, particularly for larger families.

The proposals

A number of proposals that have been announced are yet to be legislated, many of which were noted in the 2021-22 Federal Budget. Frequently Federal Budget announcements are quickly legislated for the coming financial year, however almost all superannuation related announcements in the 2021-22 Budget have a 1 July 2022 commencement. Here is a summary of a number of proposals that are yet to be legislated.

Removal of work test for certain voluntary super contributions

Status Budget announcement – no further information
Expected commencement 1 July 2022

The removal of the work test (or work test exemption) that applies from age 67 is anticipated to be limited to non-concessional and salary sacrifice contributions only. As such, the ability to make other voluntary contributions, such as personal deductible contributions, will still require the work test (or work test exemption) to be met.

The bring forward rule for NCCs

Status Budget announcement – no further information
Expected commencement 1 July 2022

The materials from the 2021-22 Federal Budget mentioned an extension to the bring forward rule for NCCs to age 74 (up from the year the person turns 67). The information provided in the Budget was brief and we await to see the details of this proposal.

Reducing the eligibility age for downsizer contributions

Status Budget announcement – no further information
Expected commencement 1 July 2022

The proposal is to reduce the eligibility age to make downsizer contributions into superannuation from 65 to 60 years of age.

First Home Super Saver Scheme (FHSSS)

Status Budget announcement – no further information
Expected commencement 1 July 2022

The proposal is to increase the maximum releasable amount of voluntary concessional and non-concessional contribution under the FHSSS from $30,000 to $50,000. The objective of the proposal is to allow first home buyers to buy their first home sooner.

A number of technical changes were also announced to assist FHSSS applicants who make errors on their FHSSS release applications.

Legacy retirement product conversion

Status Budget announcement – no further information
Expected commencement First financial year after Royal Assent of enabling legislation

The proposal is to provide a two year window for people to exit certain legacy income streams. Details of the announcement include:

  • Income streams included: market-linked, life-expectancy and lifetime pensions and annuities from any provider, including SMSFs
  • Income streams excluded: Flexi-pensions offered by any provider, lifetime products offered by large APRA-regulated defined benefit schemes or public sector defined benefit schemes
  • The income stream must have commenced prior to 20 September 2007. Also available where the original income stream commenced prior to 20 September 2007 and was subsequently transferred to another eligible income stream
  • The allocation of reserves will not count for contribution cap purposes
  • Allocated reserves will be taxed at 15%
  • Any social security concessions (eg full or 50% assets test exemption) will not carry over to any new income stream commenced
  • Exiting a product will not cause the re-assessment of the social security treatment of the product before the product is exited
  • Existing transfer balance cap rules will apply to the ending of the income stream and the commencement of any new income stream

Relaxing the residency requirements for SMSFs and SAFs

Status Budget announcement – no further information
Expected commencement 1 July 2022

The Government will relax residency requirements for SMSFs and SAFs by extending the central management and control test safe harbour from two to five years for SMSFs, and removing the active member test for both SMSFs and SAFs.

Removing the $450 per month threshold for superannuation guarantee eligibility

Status Budget announcement – no further information
Expected commencement 1 July 2022

The proposal is to increase superannuation coverage for the working population by removing the current $450 per month minimum income threshold under which employees do not have to be paid the superannuation guarantee by their employer.

Change to calculation of exempt current pension income (ECPI)

Status Bill before Parliament as at 12 August 2021
Expected commencement 1 July 2021

This proposal was first announced in the 2019-20 Federal Budget and is aimed at providing administrative efficiency and cost reductions for small super funds (including SMSFs) when calculating tax exempt income when paying income streams.

Currently, small funds that are entirely in the retirement phase (eg an SMSF that is only paying account based pensions and does not have an accumulation interest) for the full financial year are required to obtain an actuarial certificate if the fund cannot use the segregated method for calculating it’s ECPI. A small fund cannot use the segregated method for calculating it’s ECPI where it is regarded as having disregarded small fund assets (DSFA). This occurs where at least one member had a retirement phase income stream (in any fund) and had a total superannuation balance of at least the general transfer balance cap ($1.7 million for 2021-22) immediately before the start of the financial year. The requirement for the actuarial certificate is redundant and adds to the cost of administering small super funds. The proposal removes the requirement for small funds in this situation to obtain an actuarial certificate.

Further, the draft legislation aims to provide choice to trustees in the way they calculate ECPI where all of the super fund’s assets were supporting retirement phase income streams for part of the financial year and were not regarded as DSFA. Currently, the Australian Taxation Office hold the view that the assets of the fund will be segregated during this period meaning the fund may need to use both the segregated and proportionate methods for calculating ECPI for the one year. The proposal will give funds the choice to apply the proportionate method for calculating it’s ECPI in this scenario.

As superannuation is an evolving area that is key to financial advisers, we’ll continue to provide updates on what is changing and the opportunities for your clients.

Additional information

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