From 1 July 2020, Australians aged between 65 and 67 now are eligible to make voluntary super contributions (concessional and non-concessional) without needing to meet the work test. This is an increase to the previous requirement of needing to be under age 65. This change was previously announced in the April 2019 budget and is designed to progressively align the work test with the eligibility age for the age pension (currently legislated to increase from age 66 to age 67 for both men and women by 1 July 2023).
In addition, there is legislation before parliament to increase the bring-forward age to allow individuals under the age of 67 (as at 1 July in the relevant financial year) to make non-concessional contributions to super of up to $300,000, subject to the total super balance requirements. This legislation when passed is also planned to apply from 1 July 2020. With only 9 sitting days scheduled for the rest of this year it’s not certain if this legislation will be passed before 2021.
Below are a couple of new opportunities available as a result of the change in the work test age.
Opportunity #1 – Recontribution strategy to reduce death tax
Dyson and Kate are both aged 65 as at 1 July 2020 and have $500,000 each in their SMSF, and have both retired. The taxable component is 100% for both accounts. Their balance will be paid to their two adult children upon death of the members. If the death benefit was paid from the SMSF, a 17% death tax would be payable - approximately $170,000.
As both members have met a condition of release they can withdraw $100,000 each and re-contribute the money back into the fund. If this was repeated in FY22 the taxable component will be reduced to $600,000, resulting in a death tax of $102,000.
When the bring-forward legislation is passed there will be an opportunity to bring forward three years contributions in FY22 making the total recontribution $800,000. The taxable component will be reduced to $200,000 and the resulting death tax reduced to $34,000.
Opportunity #2 – Spouse contribution to receive tax offset
Dylan is aged 68 and Georgie is aged 65 as at 1 July 2020, and they have $500,000 and $200,000 respectively in their SMSF accounts. Georgie is not working, and her income is less than $37,000. Dylan elects to make a spouse contribution of $5000 to Georgie.
Georgie is now eligible to receive an 18% tax offset up to a maximum of $3,000 so long as:
- Dylan’s contribution was made from after tax dollars,
- They are both Australian residents, and married, and
- The receiving spouse is under the age of 67, if not able to meet the work test.
In Georgie’s case she will receive the maximum tax offset of $540 - being 18% of $3,000.
If you have any questions about these new changes, or would like to speak with an advisor, please contact the Partners Wealth Group Audit team today, and they will be more than happy to help you.