By Graeme Colley
Executive Manager, SMSF Technical & Private Wealth




Last night’s Federal Budget concentrated mainly on the short term by targeting tax concessions and payments to subsidise low to middle-income earners impacted by increases in the cost of living.
 
Breathe a sigh of relief that there were no surprises when it came to super. There were just two measures that had a direct impact, and each of them had been released previously, one only in the last few days.
 

Continuation of the 50 per cent reduction in minimum pension drawdown rates 

The government recently announced the extension of the 50 per cent reduction in the minimum pension drawdown rates for account-based income streams and market-linked income streams. At the beginning of the pandemic in March 2020, these were put in place until 30 June 2023.
 

Extension of the First Home Super Saver Scheme

The other change recently legislated was the increase in the amount that can be released under the First Home Super Saver Scheme (FHSSS) from $30,000 to $50,000 and will apply from 1 July 2022. In this year’s budget announcement, the FHSSS was linked to the government encouraging access to housing, which included expanding the Home Guarantee Scheme to more than double the number of places currently available.
 

Personal tax offsets and payments

The tax concessions and payments announced in the budget are directed at those impacted by the cost-of-living increases. There’s a once-off $420 cost of living non-refundable tax offset for low to middle-income earners with an adjusted taxable income of less than $126,000. Also, a once-off $250 cost of living payment will be made for eligible Australian pensioners and concession cardholders. A reduction in fuel excise of 22.1 cents per litre will apply until 28 September this year.
 

Other changes that are now law

The small number of super announcements in this year’s budget came off the back of last year’s proposed changes, including the abolition of the work test for non-concessional contributions between ages 67 and 75 and a reduction in the age to qualify for downsizer contribution to age 60. These announcements were recently made law and applied from 1 July 2022.
 

Abolition of the work test for contributions from 1 July 2022

The abolition of the work test from 1 July 2022 provides greater flexibility for anyone wishing to make non-concessional contributions for themselves or their spouse between 67 and 75 years old. The main benefit is for those who have retired and want to contribute non-deductible amounts from personal savings or windfall gains such as an inheritance. It may also allow a couple to rebalance their superannuation and will enable an increase in their retirement savings.
 
The change also means that from 1 July 2022, a person making non-concessional contributions will also be able to access the bring-forward rule, which allows them to bring forward up to two years of future standard non-concessional contributions. The amount that can be brought forward depends on the person’s total superannuation balance on 30 June in the previous financial year.
 
The work test, which is 40 hours in 30 consecutive days in a financial year, applies to anyone wishing to claim a tax deduction for personal concessional contributions.

Example 1

Sharmi is 70 years old and has been retired for many years; she wishes to contribute $110,000 to her SMSF. From 1 July 2022, Sharmi’s SMSF can accept the non-concessional contribution, and there is no need for her to meet the work test during the financial year.
 

Example 2

Veronica wishes to make non-concessional contributions of $110,000 on 1 August 2022 for her spouse Joel who is age 73 and has not worked for many years.
 

Example 3

Lexy and Barry are both 72 years old and wish to balance up their super. Lexy has an accumulation balance of $1.7 million, and Barry has an accumulation balance of $1 million. If Lexy withdraws up to $330,000 from her accumulation balance, she can make a spouse contribution for Barry, who will be able to access the bring-forward rule. Over time, if Lexy continues to draw an amount from her accumulation balance and make a spouse contribution for Barry, it may equalise their superannuation balances. Also, whether Lexy or Barry make the non-concessional contributions to the fund, they may qualify for the low-income earning spouse tax offset or the co-contribution.
 

Reduction in age to qualify for the downsizer contribution

The downsizer contribution allows a one-off, post-tax contribution to super of up to $300,000 for each member of a couple after selling the main residence that at least one of them has owned for a minimum of 10 years. Downsizer contributions are not counted against the person’s non-concessional contribution cap and are not subject to any maximum age limits. 
 
Until 1 July 2022, the legislation requires a person to be at least 65 years old to qualify for the downsizer contribution. However, the earliest qualifying age for the downsizer contribution has been reduced from 1 July 2022 to 60 years old.
 
The issues that arise out of the reduced qualifying age for the downsizer contribution are:

• Greater flexibility in funding for retirement for an individual or a couple who sell their home from age 60 and increase their superannuation balance.
• Allowing anyone to use the downsizer contribution where they have a Total Super Balance greater than the threshold or have maximised their non-concessional contributions and wish to increase their super balance.
• Access to a full or partial age pension may be compromised as the downsizer contribution will increase the person’s super balance, which may reduce the amount of pension payable due to the impact of the means test limits;
• Anyone who has fully used their pension Transfer Balance Cap may not be able to transfer downsizer contributions into the retirement phase.
 

Looking forward to 1 July 2022

While this year’s budget extended the 50 per cent reduction in the minimum account-based and market-linked income streams, we can look forward to the benefit of last year’s announcements which commence on 1 July 2022. Those announcements will provide greater flexibility in making non-concessional contributions without the need to satisfy a work test and an earlier age at which to make downsizer contributions.

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