The new financial year will usher in significant changes to superannuation that were previously announced in the 2021 Federal Budget. Here is what’s changing from 1 July, who could be affected and what action should be taken.
Super Guarantee Increases to 10.5%
The super guarantee (SG) rate will increase from 10% to 10.5% on 1 July 2022. Employers will need to use the new rate on payments made to employees on or after 1 July, even if some or all of the pay period is for work done before 1 July. The SG rate is legislated to increase to 12% by 2025.
Action required by employers: Check that your software is updated to correctly calculate employee super guarantee entitlements from 1 July.
Removal of the $450 Monthly Threshold
Previously, employers did not have to pay superannuation guarantee to an employee if their monthly wage was less than $450. The threshold has been removed from 1 July 2022 and superannuation is payable on wages regardless of the amount.
Action required by employers: Check that your software no longer has any wages threshold for superannuation guarantee.
Removal of the Work Test for Those 67-74 Years of Age
The work test requires a super fund member to have worked 40 hours in a 30-day period in the year in which they make voluntary non-concessional contributions.
From 1 July 2022, members under 75 years of age will be able to make personal non-concessional contributions without meeting the work test, subject to existing contribution cap limits.
This will allow for post-retirement contributions by those who have additional funds available such as inheritance or proceeds from the sale of investment properties, or will simply allow a greater period to boost superannuation balances.
It will also allow additional time for super fund members to withdraw and recontribute superannuation balances to increase the tax-free component (known as recontribution strategy). This can save up to 17% tax when a member’s superannuation funds are paid to adult children as death benefits.
Bring Forward Non-Concessional Contributions
From 1 July 2022, members are eligible to bring forward 2 years of non-concessional contributions if they are under 75 years of age (which has increased from the previous the age limit of 67).
Superannuation Caps for 2022/2023
- Concessional contributions: $27,500
- Non-concessional contributions: $110,000
Caution: If your superannuation balance is greater than $1.7M, you cannot make further non-concessional contributions.
Downsizer Contributions
From 1 July 2022, the age at which a member can make downsizer contributions will drop from 65 to 60 years of age. If a member or their spouse have owned their home for 10 years or more, and it was used as their main residence (and fully or partially exempt from Capital Gains Tax), the member can make a downsizer contribution up to $300,000.
Their spouse can also make the contribution, even if the house was only owned by one spouse.
The contribution must be made within 90 days of settlement and the appropriate form provided to the super fund.
This presents an opportunity in the early months of the 2023 financial year for those who have recently sold their home and would not previously have qualified but now will. By deferring the payment into the 2022 financial year, they may be able to access the provisions if they are at least 60 when they make the contribution and the contributions are made within 90 days of settlement.
Employee Share Schemes
Effective from 1 July 2022, the cessation of employment will no longer be a deferred taxing point for Employee Share Schemes (ESS).
Employees will no longer be assessed on the value of the shares granted to them upon termination of employment. This is a significant improvement to the existing rules. Previously, the employee would be taxed on the value of the discounted shares, regardless of the vesting period under the ESS arrangement. Now, the ex-employee will only be taxed when there is no real risk of forfeiture, as if they were still employed by the same employer. This will remove the potential cashflow issue of having to pay tax on shares that cannot be sold.
Published 28 June, 2022