In good news for retirees, the federal government has announced it will enact the superannuation changes it proposed in the 2021 Federal Budget.
The changes should offer more investment and superannuation options to retirees and pre-retirees with personal finance specialist Noel Whittaker noting that one of the measures “could be a useful tool in reducing death tax”.
The new legislation will:
- enable individuals aged 60 and over to make downsizer contributions to superannuation from the proceeds of selling their home. Eligible age is currently 65
- remove the $450 a month threshold before an employee’s salary or wages count towards the superannuation guarantee
- apply the work test to individuals aged 67 to 75 who claim a deduction for personal super contributions and allow them to make or receive non-concessional super contributions
- enable superannuation trustees to choose their preferred method of calculating exempt current pension income when they have member interest in accumulation and retirement phases for part, but not all of the income year
- extend the temporary full expensing regime to 30 June 2023.
The new rules will take effect from 1 July 2022.
Mr Whittaker said the ability to withdraw money from super and then re-contribute it as a non-concessional contribution could be a useful tool in reducing death tax – paid on death benefit lump sums received by non-dependent adult children – as it could convert a portion of the taxable component of a super fund to the tax-free component.
“If there is a substantial imbalance in the super accounts of a couple, one partner could also withdraw, say $330,000 and contribute it to their partner’s super, as long as the partner’s super does not exceed $1.7 million,” he said.
Mr Whittaker said the ability to make a downsizer contribution also had significant benefits.
“It could enable people with high super balances to put another $300,00 each into super because the $1.7 million limit on non-concessional contributions does not apply to downsizer contributions,” he said.
It would also assist people to maximise the amount they can have in super from the sale of their home.
“Hypothetically, a couple could make total contributions of $630,000 each from the proceeds of the sale of a property,” Mr Whittaker said.
“The first contribution would be $330,00 using the bring forward rule, and the second downsizer contribution of $300,000.
“This is where the importance of seeking professional financial advice is crucial because the terms of the property’s sale may have to be tailored to maximise super contributions.”
Mr Whittaker said tax-deductible concessional super contributions could be used to reduce capital gains tax (CGT).
“If a person has less than $500,000 in super at the end of the previous financial year and had not been making concessional contributions because they have been out of the workforce for several years possibly as much as $100,000 could be contributed to super using the catch-up concessional strategy.
“This could eliminate CGT on the sale of the asset.”
Superannuation minister Jane Hume said the legislation ensured superannuation continued to work in the best financial interests of all Australians.
“Through these measures, the government is ensuring the superannuation system works for all Australians by strengthening protections around the retirement savings of millions of Australians,” she said.
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