|The start of a financial year always brings new rules for superannuation fund members. The following article looks at some new (and not-so-new) rules in more detail.|
Employer Superannuation Guarantee Contributions (SGC) Increasing to 10% of Salary
The SGC rate increases from 9.5% to 10% of salary for employees. Most employees will receive additional superannuation contributions. An exception is employees who are paid mandated employer contributions at a rate at or above 10% already, who will see no increase (for example certain government or university employees).
Small business owners should review their systems to ensure that they are meeting their obligations to
their employees based on the new rate. Clients with existing salary sacrifice arrangements or when establishing one should review the amount to take into account the increase in their employer’s obligation and ensure they don’t exceed their CC cap.
Employees who are employed under a ‘total employment cost’ arrangement may have their take home salary reduced to offset the increase in SG payments. Clients who are employees of their own business
entity need to ensure that SG is paid as certain payments are considered ordinary times earnings (for example, directors fees).
Tax Deductible / Concessional Contributions Cap Increased to $27,500
Concessional Contributions (CC) are contributions that are made into your superannuation fund before tax. They can be made by you, your employer, or via salary sacrifice. The CC cap is now $27,500 per financial year.
This is good news for clients who want to grow their superannuation tax-effectively or manage tax issues such as realised capital gains, high tax on earned income, one-off large income such as redundancy payments, or to top up and complement a salary sacrifice arrangement once total employer contributions for the year have been confirmed.
Your CC cap may be higher if you did not use the full amount of your cap in earlier years back to 2018/19 and your total super balance at the end of 30 June of the previous financial year was less than $500,000. This opportunity is called the carry-forward of unused Concessional Contributions. Unused cap amounts can be carried forward for up to five financial years. You can check your available cap via your myGov account in the ATO online services section.
Currently, if you are over age 65 but under 75, a work test requirement exists to make CC into superannuation or use the carry-forward rule.
Personal Savings Deposits / Non Concessional Contribution Cap Increased to $110,000
The Non Concessional Contributions (NCC) cap is now $110,000 per financial year. Your own cap might be different depending on your individual situation:
- It can be higher, if you can use the three year NCC bring-forward arrangements
- Or zero, if your total super balance is greater than or equal to the general transfer balance cap (i.e. $1.6 million from 2017–21, or $1.7 million from 2021–22).
The key opportunity this provides is to allow greater after-tax savings to boost superannuation balances whether pre-retirement or in the retirement phase of life. If you are over age 67 but under 75, there is also a work test requirement to make NCC into superannuation.
Clients also need understand the implications of the cap and threshold increases, where they are currently part-way through a two or three year bring forward period, and the work test/work test exemption requirements.
Older Clients Given Opportunity to Make Non Concessional Contributions up to Age 67
The Non Concessional Contributions (NCC) three year bring forward rule has now been extended to clients under age 67 without having to meet a work test requirement.
If you make contributions above the annual NCC cap of $110,000, you may be eligible to automatically gain access to future year caps. This is known as the bring-forward arrangement. It allows you to make extra NCC without having to pay extra tax.
The eligibility for the bring-forward arrangement depends on your age (under 67 years of age at any time in a financial year), and your total super balance on 30 June of the previous financial year (maximum TSB thresholds at 30 June 2021 is $1.7m).
First Home Super Saver Scheme (FHSSS) Contributions in Operation
Clients who are planning on purchasing their first home may benefit from making voluntary superannuation contributions, which may be later withdrawn under the FHSSS.
Eligible voluntary Concessional Contributions (CC) and Non Concessional Contributions (NCC) may be withdrawn up to a limit, to put towards the purchase of a first home. Voluntary contributions and associated earnings can be released under the scheme where eligibility rules are met.
Contributions which may be withdrawn are capped at $15,000 per financial year, to a maximum of $30,000. Voluntary CCs and NCCs must be made within the ordinary caps. If funds are withdrawn under the scheme and not used to purchase a first home, they must either be recontributed to super as NCCs or extra tax is payable.
Note that the 2021/22 Federal Budget proposed to increase the maximum amount of voluntary contributions that could be withdrawn from $30,000 to $50,000. The Government has indicated that it expects this measure to commence from 1 July 2022.