The start of a new year is a time to sit back, take a break and make some resolutions about the year ahead. When it comes to superannuation, we’re already halfway through the financial year, so working out what is possible over the next six months may be challenging. So let’s have a look at super contributions for the rest of this financial year which provide the lifeblood that helps build retirement savings.
Contributions to super can be made in many situations by an employer or individual. Employer contributions can be made for Superannuation Guarantee purposes, under an industrial award or as part of a salary sacrifice arrangement. While individuals can make super contributions for themselves, their spouses or even their children. From a tax perspective, contributions can be tax deductible or non-deductible and depend on a person’s work status, age and the amount they have already accumulated in super.
Since 1 July 2022, personal non-concessional (non-deductible) superannuation contributions can be made until just after a person has reached age 75 years old without meeting a work test. However, when it comes to claiming a tax deduction for personal contributions, anyone aged between 67 and 75 is required to meet a work test of at least 40 hours in 30 consecutive days during the financial year in which the contribution is made.
It’s important to make sure the contribution caps are not exceeded and anyone making non-concessional contributions considers their total super balance on 30 June in the previous financial year to determine whether the contribution can be made without a penalty applying.
The standard concessional (tax-deductible) contribution that can be made to super for the 2022/23 financial year is $27,500, which takes into account total employer contributions and any personal contributions claimed as a tax deduction.
However, it may be possible to access a carry-forward rule for anyone with a total super balance on 30 June in the previous financial year of no more than $500,000. Anyone who qualifies can carry forward the unused amount of their concessional contributions since 1 July 2018. The carry-forward rule applies on a rolling year-by-year basis for up to 5 financial years.
Contributions made by an employer for an employee are concessional contributions and counted against a person’s concessional contributions cap. These contributions include any contributions made for Superannuation Guarantee purposes under an industrial award and any salary sacrifice contributions.
The standard non-concessional contribution is capped at $110,000 and can be made by anyone who has a total superannuation balance of less than $1.7 million on 30 June in the previous financial year. They can be made by an individual up until 28 days after the month in which a person reaches age 75.
Anyone who is under the age 75 limit, which is 28 days in the month after the person turns 75, may have access to the bring forward rule for non-concessional contributions. It allows a person to make up to $330,000 over a fixed period commencing in the first year in which they make non-concessional contributions in excess of the standard non-concessional contribution of $110,000.
It is possible for a person to make non-concessional contributions of up to $330,000 at any time over a fixed three-year period if their total super balance on 30 June in the previous financial year is at most $1.48 million. If they have a total super balance between $1.48 million and $1.59 million, they can make non-concessional contributions of up to $220,000 over a fixed two-year period. And, if they have a total super balance between $1.59 million and $1.7 million, then they have access to the standard non-concessional contribution of $110,000 each financial year.
Downsizer super contributions of up to $300,000 are available on a once-only basis to anyone who has sold their main residence that has been owned by a member of a couple for at least ten years. The contribution must be made within 90 days of the sale of the residence.
Until 31 December 2022, the minimum age limit to qualify for the downsizer contribution was 60 years old, but the good news is that from 1 January 2023, the age limit has been lowered to age 55.
There is no upper age limit or super balance limit which applies to making downsizer contributions.
Spouse contributions can be made for a person's spouse and are counted against the spouse's non-concessional contributions cap. They can be used as a strategy to even out the couple's super balances.
To be eligible, spouse contributions can be made for a spouse under the age of 75 limit, which is 28 days in the month after the spouse has reached 75 years old.
If the spouse is a low-income earner with an adjusted taxable income of less than $40,000, it is possible for the contributing spouse to receive a tax offset of up to $540 for the first $3,000 of the spouse's contribution. The tax offset is not available to the contributing spouse once their spouse has a total superannuation balance of more than $1.7 million.
Ceasing work contributions are permitted on a once-only basis after the member has reached 67 years old in the financial year after they have ceased work. These rules allow a person to make concessional (tax-deductible) contributions providing they have a total super balance of less than $300,000 on 30 June in the previous financial year.
Another benefit of making non-concessional contributions to super is that low-income earners may qualify for the co-contribution, which is paid to their super fund by the government if either has an adjusted taxable income of less than $57,016 for the 2022/23 financial year and make a non-concessional contribution of up to $1,000 the government’s co-contribution can be up to a maximum of $500.
The low-income superannuation tax offset is available for anyone with an adjusted taxable income of less than $37,000. It applies to all concessional contributions because the tax payable on the contribution received by the fund is usually greater than the personal tax a low-income earner would pay if the contribution was paid to them as salary and wages.
The offset is calculated by the ATO and paid directly to the person’s superannuation fund.
Contribution splitting can allow a person to split concessional contributions to their spouse. To qualify, the split to the person’s spouse can take place if they are under preservation age (currently 59 years of age) or between preservation age and 65 years old if they have not retired.
Concessional contributions include the employer’s super guarantee contributions, salary sacrifice contributions and personal deductible contributions. It is possible to split up to 85% of the person’s concessional contributions or up to their concessional contributions cap, which has been explained previously. The general rule is that the splitting of the concessional contribution to the person’s spouse takes place in the financial year after it was made to the fund.
Concessional contributions made in the 2021/22 financial year will usually be split in the 2022/23 financial year. This member is required to make an election that informs the trustees of the amount to be split. However, for anyone:
The election and split must be made prior to any of these events taking place, which may occur in the year in which the concessional contributions were made to the fund.
The recontribution strategy can be used once a fund member meets a condition of release of retirement or when they reach age 65, whichever occurs first. It involves the withdrawal of a lump sum and recontributing the amount withdrawn back to the fund subject to the person’s non-concessional contribution cap. The strategy has been used for many years and can have some estate planning benefits if a taxable pension is paid to a member, or death benefits will be paid ultimately to adult children.
It is possible to recontribute amounts withdrawn from the super back to the fund as non-concessional contributions providing the person has a total super balance of less than $1.7 million. The effect of the recontribution strategy is able to reduce the amount of tax an adult child is required to pay on the death of a parent if they receive a super payment. To see whether there is any benefit in using the recontribution strategy, advice is always recommended.
To start the new year, consider making additional contributions to super and benefit from compounding investment returns. A relatively small increase in contributions, especially when a person is young, can make a real difference to the amount accumulated by the time retirement arrives.
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