While the legislation is awaiting Royal Assent, which is typically a mere formality, the start date for most of the changes is July 1, 2022.  This gives everyone time to review their situation and evaluate if an update to their personal financial strategy is warranted.

In this update on what the legislation changes mean for you, we consider the changes and summarise who may be impacted and need to review their strategy.

1. Removal of the Superannuation Guarantee minimum income threshold

Currently, an employee must earn over $450 in a month before their employer is obligated to make superannuation guarantee contributions on their behalf. This legislation removes that limit making more people entitled to employer superannuation contributions.

It is expected this will assist around 3% of the Australian workforce, mainly young, low-income, part-time employees. They should make sure their employer has their current superannuation details, to ensure contributions are made to the correct fund.

2. First home saver scheme maximum releasable amount

The First home saver scheme allows individuals to make additional personal contributions, either non-concessional or concessional, to superannuation to help save towards their first home.

Currently, an individual can apply to release up to $30,000 of their personal contributions from superannuation under this scheme. The legislation increases the total amount that can be released to $50,000.

More information about the First home saver scheme can be found HERE.

3. Reduced eligibility age for downsizer contributionsf

Currently, individuals who are aged over 65 and sell their homes may be able to contribute up to $300,000 of the sale proceeds into superannuation using a downsizer contribution.

The new legislation reduces the eligibility age to 60 years of age.

More information about utilising downsizer contributions can be found  HERE.

4. Repealing the work test for superannuation contributions

Currently, individuals aged 67 and over must meet the work test before their super fund can accept a personal superannuation contribution from them. The work test requires the individual to have been gainfully employed for 40 hours in a 30 consecutive day period prior to making the contribution.

The new legislation removes the work test for those aged under 75. Only those individuals wishing to claim a tax deduction for their personal contribution will still be required to meet the work test.

In addition, individuals making a personal non-concessional contribution will be able to utilise the ‘bring forward’ rule for the years until they are 75 years of age.

The current limit on non-concessional contributions is $110,000 per year, or you can ‘bring forward’ two future years and contribute $330,000 in one go. The last year you would be able to make such a bring forward contribution would be in your 72^nd or 73^rd year, depending on your birth date.

This legislation is a real boost for those who are aged 67-75, have assets outside of superannuation, and have not maximised their total superannuation cap. It provides retirees with the ability to enhance the tax effectiveness of their financial arrangements and boost their long-term retirement incomes.

5. Segregated current pension assets

For context, this legislation concerns the tax-exempt status of superannuation investment income when a superannuation fund is paying a retirement pension to one or more of its members. The income attributable to pension assets is exempt from tax.

There are two methods that accountants and actuaries use to calculate the amount of income that is exempt from tax – either the segregated method or the proportionate method.

Currently, superannuation trustees must use the segregated method if 100% of the fund assets are used for retirement phase pensions. However, this can cause problems when such a fund receives a contribution and is no longer 100% in pension phase, at which point the proportionate method must be used.

This legislation allows superannuation trustees to choose the method by which they calculate exempt current pension income when they have members interest in both retirement phase pensions and accumulation phase. It will improve the cost efficiency of funds and reduce the administrative compliance burden.

From a planning perspective, if a super fund is considering selling an asset with a large capital gain, the trustees may wish to ensure the fund assets are 100% in pension phase at the time of sale to ensure the gain is exempt from tax. The legislation will provide trustees with the ability to better plan the after-tax outcome of asset sales. Trustees should consult with their tax agent prior to putting in place such strategies.

6. Extension of temporary full expensing of depreciating assets

The government introduced the full expensing of depreciating assets to assist businesses to cope with the impact of Covid-19. This assistance currently expires on June 30, 2022.

The new legislation passed extends this assistance for another year, to expire on 30 June 2023.

Business owners should review their financial position with their tax accountant to ensure they avail themselves of what could be the final year of government assistance in this area. The opportunity is available to businesses whose aggregated turnover is under $5 billion and who have assets that were first held and first used prior to 30 June 2023.

While all the above items were announced in the Federal Governments’ 2021-22 budget in May 2021, it is only now that legislation has been passed to put these announcements into action.

Those impacted by the changes, particularly those aged 60 and over, should review their financial strategies with their Adviser to ensure their position has been optimised.  For Hewison Private Wealth clients, we will be progressively reviewing all of our superannuation strategies with clients over the coming months.

If you are not already a client of Hewison Private Wealth and given these changes will soon come into effect, perhaps you would like a review of your strategy or undertake one. To meet with one of our experienced Advisers please reach out by calling 03 8548 4800 or make your request online HERE.