Knight 2021 Tax Planning Guide – Superannuation

Superannuation

  • The concessional contribution cap in the 2021 year is $25,000 for everyone, regardless of age and this threshold changes to $27,500 from 1 July 2021. If you make or receive concessional contributions of less than the annual concessional contributions cap of $25,000 pa, you may be able to accrue these unused amounts for use in subsequent financial years, subject to eligibility criteria. It is worth noting that the carried forward amounts are available through the MyGov system as well as our ATO tax agent portal.
  • If your total superannuation balance is over $1.6m at 30 June 2020, you cannot make non-concessional superannuation contributions (usually up to $100,000 per year or $300,000 using the “bring-forward rule”) in FY2021. These limits will increase to $1.7m ($110,000 and $300,000) respectively from 01 July 2021.
  • COVID-19 temporary 50% reduction in superannuation minimum pension amounts – To assist retirees, the government has reduced the minimum annual payment required for account-based pensions and annuities, allocated pensions and annuities and market-linked pensions and annuities by 50% in FY2020 and FY2021. Rates are set between 2% and 7% for these years, depending on the age of the recipient. Note: If you elected to receive the minimum pension payment in 2020FY, the new minimum pension rates will be automatically applied to your account for the 2020-21 financial year.
  • If you are over the age of 65 and have sold your home, you may be eligible to make a one-off contribution of up to $300,000 (or $600,000 per couple). For those eligible, there is no need to meet a contributions work test and the contribution is not subject to the prohibition on making additional non-concessional contributions where your total super balance is more than $1.6 million. The age limit is proposed to change to 60 from 1 July 2022.
  • Individuals with adjusted taxable income of over $250,000 for the year will be liable for an additional tax of 15% on their concessional superannuation contributions. Adjusted income is the sum of your taxable income and other items, most commonly deductible super contributions, reportable fringe benefits and investment losses. The maximum this surcharge will be for an individual, subject to the $25,000 cap, is $3,750.
  • If you are over 67 you must meet the work test to contribute to super, meaning you must be gainfully employed for at least 40 hours in 30 consecutive days in the financial year the contribution is made.
  • You can split up to 85% of your concessional contributions from a prior year with your spouse as long as they are under their preservation age, or under 65 and still working. This may be a strategy where your spouse has a low super balance or are closer to retirement. Contribution splitting can only be done after the end of a financial year.
  • You may be entitled to an income tax offset of up to $540 for superannuation contributions for the benefit of a lower income (under $40,000) or non-working spouse who is under age 70.
  • If you are under the age of 71, engaged in employment and your total income is less than $54,837, the government will co-contribute 50 cents for every $1 of any non-concessional (undeducted) super contributions that you make, up to a maximum of $500. This may be a useful strategy for low income working spouses or adult children working part-time.

Recent budget announcements: –

  • Repealing the work test for voluntary contributions
    The Government will allow individuals aged 67 to 74 (inclusive) to make non-concessional (including under the bring-forward rule) or salary sacrifice contributions without meeting the work test, subject to existing contributions caps. It is expected that this change will also extend the bring-forward rule to 74. However, we await the sight of the draft legislation to confirm this. Currently, individuals aged 67 to 74 years can only make voluntary contributions (both concessional and non-concessional) to their superannuation, or receive contributions from their spouse, if they are working at least 40 hours over a 30-day period in the relevant financial year. This measure is expected to commence from 1 July 2022.

We welcome your call to discuss tax planning for you individually as well as your business.