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Superannuation and tax planning considerations before June 30, 2022

Superannuation and tax planning considerations before June 30, 2022

It is essential that clients review their superannuation prior to June 30, 2022, to ensure they are getting all the tax benefits that they are entitled to.

Here’s our advice on what to keep in mind:

Contribution planning

What tax deductible (concessional) contributions can be made for the year ended June 30, 2022?

The concessional contributions cap is $27,500 per individual for the 2021-22 year. Any excess over the cap is taxed at the individual’s marginal tax rate.

Concessional contributions are contributions a person is claiming a tax deduction for (e.g. an employer or an individual).

Concessional contributions include:

  • Superannuation guarantee (SG) contributions
  • Employer voluntary or salary sacrifice contributions
  • Member taxable or deductible contributions (contributions claimed as a deduction in your personal income tax return).

TIP: If you have received employer contributions in 2021-22, or even if you have not received any employer contributions in 2021-22, consider making personal deductible contributions to get you up to the $27,500 limit. The higher your income, the greater the tax savings.

Carry forward provisions

If an individual has not used their maximum concessional contributions they carry forward unused concessional contributions for up to five years, and can use these unused contributions if their total superannuation balance (TSB) is less than $500,000.

TIP: If your superannuation balance is less than $500,000 you can check your carried forward unused concessional contributions through your MyGov account under the ATO tab and determine the ‘carry forward’ concessional contributions that can be made prior to June 30, 2022. If you don’t have a MyGov account or you need assistance with finding your carried forward unused concessional contributions then LDB can help.

Work test

If an individual is under the age of 67, there is no need for them to be working in order to make contributions to superannuation.

Individuals aged between 67 and 74 must meet a ‘work test’ to make contributions to superannuation.

Note, the work test is not onerous. It requires 40 hours of gainful employment over 30 consecutive days, at any time during the financial year. For example, someone could have worked part-time, 10 hours per week in July, and they will have satisfied the ‘work test’ for the entire financial year. Be aware that these rules will change from July 1, 2022.

Splitting of contributions

An individual is able to split concessional contributions, which are made on their behalf, to their spouse (subject to meeting certain conditions).

Up to 85 per cent of the concessional contributions made can be split between spouses, generally following the end of the financial year. For example, if one superannuation member of a couple has a total concessional contribution of $27,500 in the financial year then they could split $23,375 of these contributions and have them paid into their spouse’s superannuation fund.

The main reasons that an individual would want to split contributions are:

  • To assist in maximising each member of a couple’s limit of $1.7 million that can be used to start a tax-exempt account based pension
  • To assist in allowing individuals to make non-concessional contributions cap (NCCs) by helping to keep their total superannuation balances below the $1.7 million cap – see below
  • To assist with the ability to use the carry forward unused concessional contributions provisions, given the cap for these contributions is only $500,000 (TSB)
  • Where there is an age difference between spouses, and the ability for the older spouse to access superannuation benefits at an earlier age
  • For Centrelink advantages. By minimising a superannuation member’s balance that is counted under Centrelink Asset and Income tests, contributions (and the corresponding balance) split to a younger spouse are not counted by Centrelink until that person reaches Age Pension age (usually 67) or they commence a superannuation pension, whichever is earlier.
  • Allowing a spouse to have sufficient equity in their superannuation to pay for life insurance and other superannuation related benefits.

Spouse contributions

Individuals that make after-tax contributions on behalf of their spouse can claim a tax rebate of up to $540 on the first $3,000 of contributions.

A rebate for superannuation contributions paid on behalf of a spouse of up to $540 can be claimed by the contributing spouse, on contributions of $3,000 or more.

For the year ended June 30, 2022, if the receiving spouse earns less than $37,000 (assessable income) and $3,000 or more is contributed into a complying superannuation fund on their behalf by their spouse, then the contributing spouse can claim a tax rebate of up to $540 (subject to them meeting certain conditions).

What after-tax contributions can be made to superannuation prior to June 30, 2022?

Non-concessional contributions (NCCs) or after-tax contributions, are contributions that an individual makes to superannuation and is not claiming a tax deduction for.

The NCC cap for the 2021-22 financial year is $110,000 and is subject to an overall total superannuation balance (TSB) cap of $1.7 million (see table below).

Individuals under the age of 67 also have the ability to bring forward these contributions and contribute up to $330,000 over a three-year period, depending on their total superannuation balance (TSB) as at June 30, 2021.

These rules are as follows:

Total superannuation balance at June 30, 2021 Total possible contributions (NCCs)
Less than $1.48 million $330,000
$1.48 – $1.59 million $220,000
$1.59 – $1.7 million $110,000
$1.7 million or more Nil

To make an NCC you must be under the age of 67 at the time the contribution(s) is made to not have to meet the work-test.

Additionally, if you were age 67 or over (and under age 75) you must meet the work test at the time the contribution(s) is made, and then you are limited to NCCs of $110,000 only for the year ended June 30, 2022 (if TSB less than $1.7 million at June 30, 2021). Note, these rules will change from July 1, 2022.

It is essential that if you are considering making NCCs to your superannuation fund that you ensure compliance with the rules prior to a contribution being made.

Account-based pensions (ABPs)

If you are receiving an account-based pension (ABP) you need to make sure that you draw out the required minimum pension prior to June 30, 2022.

If the minimum pension is not paid for the financial year, your superannuation fund could lose its tax-exempt status on investment income. This should be avoided.

Your fund must pay you the required minimum pension by June 30, 2022, which is based on a percentage of your account balance as at July 1, 2021, or when your pension started (if later in the financial year it’s pro-rated), as follows:

Age Standard minimum percentage Minimum percentage for 2021-22
Under 65 4% 2%
65-74 5% 2.5%
75-79 6% 3%
80-84 7% 3.5%
85-89 9% 4.5%
90-94 11% 5.5%
95 and over 14% 7%

Note, due to the economic impacts of COVID-19, the government has legislated that only 50 per cent of the minimum pension needs to be paid for the 2019-20, 2020-21 and 2021-22 financial years. This concession has been extended for the 2022-23 financial year as well.

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