Superannuation changes a plus for older Australians

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With the start of a new financial year, Australians now have more opportunities and greater flexibility when it comes to superannuation. New laws were introduced on 1 July 2020 allowing more people to make superannuation contributions without having to meet a work test. Spouse super contribution rules have also been expanded.

What are the changes?

Before 1 July 2020, as soon as you reached 65 years of age, you were required to meet a work test before making any voluntary superannuation contributions. To satisfy this work test, 40 hours or more of gainful employment had to be performed within a 30 day period. Now, the work test rules do not apply unless you are 67 or older on the day of contribution allowing more individuals to make personal contributions to boost their retirement savings.

The second change relates to spouse contributions. Spouse contributions are a great way to grow the value of your spouse’s superannuation balance and, if your spouse earns a low or no income, you may be able to claim a tax offset of up to $540.

Previously, to receive a spouse contribution, the eligible spouse had to be under 70. From 1 July 2020, the spouse age has increased to under 75 years of age with those 65 and 66 no longer needing to meet a work test.

Finally, the maximum non-concessional contribution (contributions where no tax deduction is claimed) has been proposed to increase from $100,000 to $300,000 for those aged 65 and 66 providing more opportunities to accumulate wealth in the superannuation system. Restrictions apply to those with a total superannuation balance approaching $1.6 million. At the time of writing, this change had not yet become law however it is anticipated that the relevant legislation will be finalised soon.

Who will benefit?

Retirees looking to increase their savings in the superannuation system will now have two extra years to contribute without having to be gainfully employed. Contributing on behalf of your spouse has also been made easier and, for those who receive a windfall in retirement such as an inheritance or the sale of a substantial asset, this might be a great opportunity to contribute larger amounts into super as potentially significant tax benefits may be available.

Case study

Samira is 66 years of age and retired six years ago when she was made redundant. She recently sold her investment property and now has $150,000 available to invest after repaying debt and meeting a range of planned expenses. The property has been a sound investment for Samira and she has made a capital gain (after the allowable 50% discount) of $100,000.
Prior to the 1 July 2020 changes, Samira would not have had the opportunity to make a personal contribution to superannuation as she is retired and over 65. However, from 1 July this year, superannuation contributions can be made allowing Samira to boost her retirement savings and potentially reduce her overall tax for the year by $10,750 by claiming a tax deduction for some of her contributions.

Strategy summary:

Samira makes a personal contribution to her superannuation fund of $150,000 with $50,000 being claimed as a tax deduction as she is eligible to use her unused concessional cap from previous years. The other $100,000 is classified as a non-concessional (after tax) contribution with no tax going into the super fund or when withdrawn. She can make this contribution in the 2020-21 year as she is 66 and a work test does not have to be met under the new rules.

As shown in Samira’s situation above, substantial benefits may be obtained for those aged 65 and 66 due to the changes in superannuation rules from 1 July 2020.

This information is current as at September 2020. This article is intended to provide general information only and has been prepared without taking into account any particular person’s objectives, financial situation or needs (‘circumstances’). Before acting on such information, you should consider its appropriateness, taking into account your circumstances and obtain your own independent financial, legal or tax advice. You should read the relevant Product Disclosure Statement (PDS) before making any decision about a product. While all care has been taken to ensure the information is accurate and reliable, to the maximum extent the law permits, ClearView and its related bodies corporate, or each of their directors, officers, employees, contractors or agents, will not assume liability to any person for any error or omission in this material however caused, nor be responsible for any loss or damage suffered, sustained or incurred by any person who either does, or omits to do, anything in reliance on the information contained herein provided by the index may be used to extend return history. To the extent the index providers have included fees and expenses in their returns, this information will be reflected in the hypothetical performance.

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