Peter Townsend Principal Townsends Business and Corporate Lawyers
From one July a new law will permit a super fund to accept a personal superannuation contribution from an individual aged between 67 and 75 years regardless of whether the individual meets the work test.
The Federal Government would like us to work longer.
The longer we work the less likely we are to claim our aged pension entitlements and the longer our superannuation will last. (There’s a bit of a paradox there because if we work longer, we may not use up all our super which means it will go to our kids and the Government is not keen on superannuation being used as an inheritance vehicle.)
The other thing the Government wants: us to have more super. Again, more super means less claim on the age pension system.
So anything that can be done to make working longer more attractive or adds to a person’s super is good in the Fed’s view.
Against that context we have the recent changes to the laws on older people contributing to super. These recent changes have extended the age during which a person can make a personal contribution to superannuation.
Generally contributions to super are:
• from an employer (compulsory under the super guarantee laws and currently 10% of wages or salary and set to rise to 10.5% from 1 July 2022)
• from the member themselves and in respect of which they are entitled to claim a tax deduction (called concessional contributions and currently limited to $27,500 pa), and
• from the member themselves and in respect of which they are not entitled to claim a tax deduction (called non-concessional contributions and relating to an additional amount of normally up to $110,000 pa).
Currently a superannuation fund can only accept a personal superannuation contribution from an individual aged between 67 and 75 years if the individual meets the work test.
The work test is that the member worked (the precise wording is ‘gainfully employed’) for 40 hours in any period of 30 days during the income year when the contribution was made or that the member was eligible for certain one-off work exemptions.
As the new provisions allow the fund to accept the contribution (within 28 days of the member turning 75) they also make it clear that the member can only claim a tax deduction for the personal contribution if they meet the work test. There is the continuing encouragement to work longer.
There are also changes to the ‘bring forward’ rules.
Individuals can ‘bring forward’ their non-concessional contributions from two future years if they meet the eligibility criteria. So a person can contribute up to $330,000 to their super (this year’s $110,000 plus two future years of the same amount), though of course this is an advance contribution not an extra one, so they then can’t contribute again for three years.
One of the eligible criteria for being able to participate in the ‘bring forward’ strategy is that the individual is under 67 years of age in the financial year in which they make the contribution. The new rules increase that the cut-off age to 75 years.
This means that individuals aged 67 to 74 years (inclusive) who were not previously able to bring forward non-concessional contributions due to their age may do so, starting in the 2022-23 financial year.
Generally people aged 75 and over are not allowed to make voluntary contributions to superannuation, so these amendments are not intended to allow individuals approaching 75 years of age to bring forward non-concessional contributions from future years (i.e. during which they will be aged 75 years or over) where they will not have eligible cap space. Individuals will only be able to access the bring forward arrangements for years in which they have cap space.
Why is age 75 so important? The Government figures that once you reach that age you shouldn’t be able to benefit from tax concessions because you’re so old that you’re highly unlikely to use all your super anyway and you’ll then only give it to the kids.
