Older working Australians and retirees are key beneficiaries of changes to superannuation legislation that came into effect on 1 July 2022.
Because many of the changes provide an opportunity for people to get more of their money into the tax-effective superannuation environment, it is worthwhile summarising them for clients.
Minimum pension drawdown rates
The temporary 50 per cent reduction in minimum age-based superannuation drawdown rates for account-based pensions and annuities has been extended to the 2022-23 financial year.
The full table of minimum drawdown rates by age is available on the Australian Taxation Office (ATO) website.
Removal of the work test
The work test will be abolished for individuals aged between 67 and 74 when making or receiving personal or salary sacrifice super contributions, increasing flexibility for older Australians to save for retirement.
Existing annual contribution cap arrangements will still apply.
People aged 67 to 74 will also still need to meet the work test if they wish to claim a personal superannuation deduction for their contribution.
They will need to lodge a notice of intent to claim or vary a personal super contribution deduction. The ATO will check if they meet the work test when they lodge their income tax return.
The work test is satisfied if a person can prove they were gainfully employed for 40 hours during a consecutive 30-day period.
Lifting the bring-forward rule age
The removal of the work test opens the opportunity for people aged under 75 to use the three-year bring-forward rule to make non-concessional contributions into their superannuation account up to the maximum of $330,000.
However, those using the bring-forward rule still need to comply with ATO provisions around the total super balance and the $1.7 million transfer balance cap governing the amount of super that can be transferred into the retirement phase.
Lower age for downsizer contributions
The eligibility age to take advantage of the home “downsizer” measure has been lowered from 65 to 60.
As such, people aged 60 and above who comply with a range of other eligibility conditions will be able to add up to $300,000 – couples up to $600,000 – into their super from proceeds of their principal place of residence.
A downsizer contribution forms part of the tax-free component of people’s super. It can be made in addition to non-concessional super contributions and doesn’t count towards their personal super contribution limit.
It can be made even if their total super balance is more than $1.7 million.
Legacy retirement product conversions become available
For two years, individuals will be able to move their superannuation from a specified range of restrictive outdated pension products to more flexible retirement income choices.
Legacy products covered include market-linked, life expectancy, and lifetime offerings that were started before 20 September 2007 from any provider, including self-managed superannuation funds.
Not covered are flexi-pension and lifetime products from APRA-regulated or public sector defined benefit schemes.
Higher preservation age
The minimum age for individuals to access super if they are retired or want to commence transition to a retirement income stream has increased from 58 to 59 for those born between 1 July 1963 and 30 June 1964.
Increasing the low-rate cap
The limit set on the amount of taxable components (taxed and untaxed elements) of a super lump sum that can receive a lower (or nil) rate of tax changed from $225,000 to $230,000.
It applies to members that have reached their preservation age but are below 60 years.
Increasing the untaxed plan cap
The untaxed plan cap amount, which limits the concessional tax treatment of benefits that have not been subject to contributions tax in a super fund, has increased from $1.615 million to $1.65 million.
It applies to each super plan from which a person receives super lump sum member benefits and is used to calculate the excess untaxed rollover amount.
Like the low cap rate, the untaxed plan cap amount is indexed in line with average weekly ordinary time earnings in increments of $5000 (rounded down).
Increased co-contribution thresholds
Income thresholds for individuals eligible for a government superannuation co-contribution payment, up to a maximum of $500 per year, have increased.
Those earning up to and including the new lower income threshold of $42,016 who make personal superannuation contributions of $1000 during the 2022-23 financial year, and who meet all eligibility requirements outlined by the ATO, can receive the government’s full $500 co-contribution.
The maximum co-contribution rate has been reduced by 3.33 cents per dollar on income earned above the lower threshold rate and is not payable after an individual’s income reaches the new higher income threshold of $57,016.
Increased CGT contributions cap
The lifetime maximum capital gains tax exemption cap on non-concessional contributions made under the small business retirement exemption and/or small business 15-year exemption has increased from $1.615 million to $1.65 million.
The super CGT cap is the maximum amount of eligible personal contributions individuals can choose to exclude from counting towards their non-concessional contributions cap and is separate from other non-concessional super contribution limits.