It’s not long until the end of this financial year (EOFY), and now is the time to make sure you have taken advantage of the changes to superannuation that have taken place during the year. It will also help put your SMSF in a good place for the next financial year.
The 2022-23 financial year saw another year of changes to:
• abolish the work test for non-concessional contributions,
• reduce the minimum qualifying age for downsizer contributions,
• increase contributions made under superannuation guarantee,
• continue the 50% reduction in the pension minimum, and
• increase the amount available under the First Home Savers Super Scheme
All these changes allow you to keep more in your super fund for retirement savings.
When considering whether you will contribute to super, or to commence a pension from your SMSF, it is important to take into account the indexation of the Transfer Balance Cap and Total Superannuation Balance Cap, which come into play from 1 July 2023. These caps will increase from $1.7 million to $1.9 million. Good planning now may reap the rewards over the coming financial year.
Now let’s look at this year’s super changes in more detail to see how they could work in your favour before this financial year is out.
There are two types of contributions that can be made to super, tax-deductible concessional contributions and non-deductible non-concessional contributions. If you are an employee, your employer may claim a tax deduction for contributions made for you.
You may be eligible to claim a tax deduction for personal concessional contributions you make to your super. For personal concessional contributions, you’ll need to send a ‘Notice of Intent’ to your fund prior to lodging your personal tax return of the amount you intend to claim. The important part is to make sure the contribution is made to the fund by 30 June in the financial year.
The standard concessional contribution of $27,500 for the 2022/23 financial year is taxed at 15%. Any concessional contributions in excess of this cap are taxed at your personal rates, and you can have the excess refunded to you or leave them in the fund and counted against your non-concessional contribution cap. However, it is possible to have a higher concessional contributions cap if the amount you had in super on 30 June 2022 was no more than $500,000. If you qualify, then your cap will include the amount that has not been claimed as a tax deduction and is below your concessional contributions cap since 1 July 2018. These contributions are called your ‘carry forward concessional contributions’.
Personal non-concessional contributions can be made in many situations. For example, they include downsizer contributions if you sell your main residence, contributions made under the small business CGT retirement concession, contributions made for your spouse, or even those made for a child under 18 years of age. Low-income earners may qualify for the government co-contribution and low-income superannuation tax offset, which could also be considered in this category.
Making downsizer contributions have become increasingly popular since commencing in July 2018. Until 31 December 2021, anyone 60 or older could make a downsizer contribution of up to $300,000 after they or their partner sold their main residence that they owned for at least 10 years. From 1 January 2023, the qualifying age was lowered to age 55.
There is a standard cap of $110,000 that applies for the 2022/23 financial year to non-concessional contributions if the total amount you had in superannuation on 30 June 2022, which is called your Total Super Balance, was no more than $1.7 million. If your Total Super Balance is greater than $1.7 million, a penalty tax applies to your non-concessional contributions, and you may need to withdraw the excess from super. If you leave the excess amount in the fund, it is taxed at 45%, which should be avoided.
For anyone under the age limit of 75 on 1 July 2022, it is possible to access the bring forward rule, which allows you to bring forward up to the next two years non-concessional contributions. The bring forward rule applies if your Total Super Balance was no more than $1.59 million. If it is between $1.48 million and $1.59 million, then you may qualify to bring forward up to one year’s standard cap, and if you have a Total Super Balance of no more than $1.48 million, then you may qualify to bring forward up to two year’s standard cap.
Salary sacrifice contributions are usually worked out with your employer at the start of a financial year or when commencing a new job. Starting a salary sacrifice agreement just prior to the end of a financial year has some issues, as the deduction from your salary may not maximise the amount that can be paid into super.
However, now that personal tax deductions are available for super contributions, you can top up your concessional contributions from personal savings if the amount you have salary sacrificed looks like it will fall short.
Don’t forget that Superannuation Guarantee (SG) contributions made by your employer count against your concessional contributions cap, which is $27,500 but can be greater if you qualify under the higher cap, which was explained previously. As these contributions are compulsory, you will need to take them into account with any contributions made under a salary sacrifice agreement to avoid any excess that may arise.
Spouse contributions can be an important addition to the superannuation savings of your spouse. As spouse contributions are treated as non-concessional contributions and not tax-deductible, they are counted against your spouse’s non-concessional contributions cap. However, if your spouse qualifies as a low-income earning spouse with an adjusted taxable income of less than $37,000, the spouse contribution can qualify for a tax offset for you as the contributing spouse. If you make a spouse contribution of at least $3,000, you may qualify for a tax offset of up to $540.
There is a special concession for contributions that applies on a once-only basis to someone between 67 and 75 years of age in the year after they have ceased working. If you have a Total Super Balance of no more than $300,000 on 30 June in the previous financial year, you can be entitled to make concessional contributions to super without the need to meet the work test in the financial year after you have ceased work. Of course, you can make non-concessional contributions in any year after you have ceased work if you qualify right up to the time you meet the age 75 limit, and there’s no need to meet the work test.
Don’t forget that if you have made non-concessional contributions of at least $1,000 to superannuation, you may qualify for the government co-contribution of up to $500. To qualify, you must be under age 71, have an adjusted income of less than $57,016 (2022/23 financial year) and be employed or self-employed.
If you are eligible for the co-contribution, the payment will be automatically paid to your super fund by the ATO once you have lodged your tax return for the financial year.
The Low Income Superannuation Tax Offset (LISTO) of up to $500 depends on the amount of tax-deductible contribution made to super, and your adjusted taxable income is no more than $37,000.
Just like the co-contribution, if you qualify, the amount is paid by the ATO automatically to your super fund.
If you are a small business owner with net assets of no more than $6 million or a business with a turnover of no more than $2 million, you may qualify for certain CGT small business retirement concessions on the disposal of the business or certain business assets. The calculation of what qualifies under these concessions is something that your personal tax adviser can help you with. The current CGT threshold amount is $1,650,000 for the 2022/23 financial year.
There is no work test for amounts that qualify under the small business retirement concession that are rolled over to super after 1 July 2022. However, it is not possible to transfer amounts that qualify under the CGT small business retirement concession after you reach the age of 75 limit.
During the financial year, it helps to keep an eye on the amount of concessional and non-contributions made to super to see whether any excess is likely to occur and penalties applied. For concessional contributions, it’s important to see what your employer may have contributed, including anything made under a salary sacrifice agreement.
For non-concessional contributions, you should check the amount contributed so far in the 2022/23 financial year and the last two years in case the ‘bring forward rule’ has been triggered. And don’t forget that any spouse contributions you may have made count towards your spouse’s non-concessional contribution cap, which their total superannuation balance can limit on 30 June in the previous financial year.
Super contributions can be made in many ways by cash, cheque, electronic transfer or transfer of a limited range of investments. It is important to ensure the contribution reaches the fund by 30 June. Otherwise, any late contributions won't count until the next financial year. This could result in an excess contribution, and an excess concessional or non-concessional contribution penalty may be applied.
If you are age 59 (the current preservation age) or older, you are entitled to commence an income stream from 1 June in any year and access the following advantages:
• Any income earned by the superannuation fund on the balance used to commence the pension, which is in the retirement phase is tax-free.
• There is no requirement to actually receive an income stream payment in June of the financial year in which the pension commences. This allows you to delay receipt of the income stream that commenced in June 2023 up until the end of June 2024 at the latest.
• If you commence a pension on 1 June 2022 and don’t reach age 60 until the next financial year, any pension received after reaching 60 years of age will be tax-free.
Samantha is 59 years of age and retired. She commences an income stream in June 2023 with $800,000. It is not compulsory for her to receive any income stream before 1 July 2023 unless she chooses. Samantha’s birthday is on 10 May, and if she delays receipt of her income stream until after 10 May 2024, when she reaches 60 years old, the amount she receives will be considered tax-free. In addition, any income earned on her balance in the superannuation fund supporting her income stream will also be tax-free from the time it commenced in June 2023.
A critical issue with SMSFs is that you are required to withdraw at least the minimum account-based pension or transition to a retirement income stream from your fund. Don’t forget that for the 2022/23 financial year, the minimum pension percentage has been reduced by 50%. However, we expect this to increase to the standard minimum pension for the 2023-24 financial year.
Underpayment of pensions and income streams can lead to a number of compliance issues if the minimum pension has not been paid. This time of year is a good time to see whether you will withdraw at least the minimum pension amount from your SMSF by 30 June 2023. It will ensure that any income earned by the fund on any investments supporting the pension will be tax-free and not taxed at 15%.
The ongoing changes to superannuation provide some new rules that need to be applied to your situation for the 2022/23 financial year. Whether it’s the abolition of the work test for non-concessional contributions, tax deductions or getting pension payments right - they all may have an impact on your situation. Make sure you know what’s required so you gain the maximum benefit out of your SMSF.