Two key contribution strategies open up for SMSFs

Two key changes to superannuation laws are now in play and will improve opportunities for some to boost their retirement savings.

The ability for certain Australians to contribute more to their super opened up this financial year following two notable changes to the super laws that are now legislated. The first is that eligible individuals are now allowed to make additional catchup concessional contributions using unused concessional contributions cap amounts accrued from the 2018-19 financial year.

The second, announced as part of the 2018 Federal Budget, enables older Australians to make personal super contributions for one more year after they stop working if certain conditions are met.

CATCH-UP PROVISIONS FOR CONCESSIONAL CONTRIBUTIONS

These provisions allow certain SMSF members who do not use their entire annual concessional contributions cap (currently $25,000) to carry forward their unused cap amounts for up to five years, providing the opportunity to “catch-up” in a later financial year.

The catch-up rules are only available to fund members who have:

• a total superannuation balance of less than $500,000 at 30 June of the prior financial year to which they may be able to make the extra concessional contributions, and
• unused concessional contributions cap amounts for one or more of the previous five years in which the extra concessional contribution is made.

Using the catch-up rules can produce tax-effective outcomes and help eligible members maximise the value of their concessional contributions over the years. Making additional concessional contributions is an effective way to build retirement savings and save tax because these contributions will generally be taxed in the fund at 15% rather than the individual’s marginal tax rate which could be up to 47%.

WORK TEST EXEMPTION

The work test exemption allows an individual who is 65 or over (but not yet aged 75) to make voluntary contributions to superannuation for one more year after they stop working if they satisfy two conditions.

The first condition requires a member to have satisfied the work test (i.e. to have been gainfully employed for a minimum of 40 hours in 30 consecutive days) in the financial year immediately prior to the year of the contribution.

The second condition requires the member to have a total superannuation balance of less than $300,000 immediately prior to making the contribution (that is, at the previous 30 June).

The work test exemption imposing these requirements commenced on 1 July 2019 and will allow older Australians with less than $300,000 in super to boost their savings in the first year of retirement without having to meet the work test.

Effectively, this means they can still make voluntary contributions to super for 12 more months from the end of the financial year in which they last met the work test. This 12-month extension could prove valuable for those well over age 65 and not working who have the capacity to contribute a further $100,000 to super as a non-concessional contribution or to use the small business capital gains tax contribution (providing the work test was met in the immediately preceding year and all the other requirements have been satisfied).

If you have any questions, feel free to ask them in the comment section. We will be happy to answer all your queries.