Noel Whittaker's Blog Superannuation should play a major part in your retirement plans. Let’s face it, it lets you build up assets in a low tax environment, and a good fund will typically do better than you could do on your own. But judging by the emails I receive, many people are unaware of recent changes that offer useful strategies to save tax and build wealth.
Since 1 July 2018, anybody with a superannuation balance of less than $500,000 at 30 June in the previous financial year has been able to use their unused concessional contributions caps to make additional concessional contributions – these are known as catch-up contributions. The amount that can be contributed is calculated on a rolling basis for a period of five years, but keep in mind that amounts carried forward that have not been used after five years will expire. Only unused amounts accrued from 1 July 2018 can be carried forward, so the effective start date for additional contributions was 1 July 2019.
CASE STUDY Harry is 68, and works as a handyman. His superannuation is minimal. He expects to sell an investment property next year that will trigger a taxable capital gain of $75,000 after the 50% discount. Because he has not made any concessional contributions for the three years beginning 1 July 2018, he will have the right to “catch up” for those three years with contributions of up to $75,000 in the 2022 financial year, provided his super balance is less than $500,000 at 30 June 2021. This catch-up contribution can be offset against the taxable capital gain, and may well eliminate any capital gains tax.
Until recently, you could not contribute to superannuation past age 65 unless you passed a work test – which requires working for at least 40 hours in a consecutive 30-day period during the financial year in which you make a contribution. This age limit has now been changed from 65 to 67.
There are now also work test exemptions for Australians aged 67 to 74. In certain circumstances, new retirees aged between 67 and 74 can now make voluntary contributions to their super account without having to undergo a work test. To be eligible, your total superannuation balance must be less than $300,000, you must make the contribution within 12 months of the end of the financial year in which you last met the work test, and you must not exceed the existing contribution caps.
This doesn’t mean that a person aged 68, who has made no contributions for years, can suddenly contribute at age 68. In scenarios such as this, a work test would still have to be satisfied.
These new rules enable workers approaching retirement, and new retirees, to boost their superannuation balances using the $25,000 concessional cap and the $100,000 non-concessional cap. And of course, to use the catch-up contributions strategy mentioned above, if appropriate.
A major finding of the Cooper enquiry into superannuation was that most people are disengaged with their super. It’s time to get engaged. The above strategies – as well as the ability to now contribute up to $600,000 into super irrespective of current superannuation balance by downsizing – mean the opportunities to build wealth are better than ever. Don’t miss them.