By Darren Withers

The 2021/22 financial year will see an increase in super thresholds that was set in motion in 2017. In that year, the government adjusted superannuation rules and set up a future indexation of thresholds. In part, this was done to help ensure that super contributions could keep pace with inflation. Although inflation has been low over recent years, the first predetermined increase in super thresholds will kick in automatically on July 1 this year. This is potentially good news for anyone who is looking at ways to boost their super balance.

Concessional contributions lifting to $27,500 p.a.
The limits on how much you can put into super each year are rising. Tax deductible contributions, known as concessional contributions, have previously been limited to $25,000. With indexations, this will now lift to $27,500 per year. For those who salary-sacrifice through their employer, it may be possible to have regular contributions increase up to the new limit.

Non-concessional contributions increasing
After tax contributions, which we know as non-concessional contributions, also get an increase. As they are pegged at four times the concessional limit, people will now be able to contribute $110,000 annually to their super in this way. This also means that, under the “three year bring forward rule,” you might be able to contribute $330,000 in one year.
It should be noted however, that non-concessional contributions are restricted for those that have high super balances. In the past, anyone who had more than $1.6m in superannuation, was ineligible to make non-concessional contributions. With indexation, this lifts to $1.7m from 1 July 2021. Those that were ineligible due to having a balance between $1.4 and $1.48 may now be able to take advantage of the three year bring forward. The three year bring-forward rule is also restricted, as those with total super balances of $1.48 million and above are excluded. This has been lifted from a previous threshold of $1.4m, potentially opening up the ability to make larger contributions to more people.

Raising the transfer cap
The Transfer Balance Cap is the amount of money that a person is allowed to transfer into superannuation pensions during their lifetime. from 1 July the cap will increase to $1.7m.
Unfortunately, for those that have previously used all their transfer balance cap in the past, it will not be possible to put more into pensions. This is because the indexation of this threshold only applies to those that haven’t used all their cap. And the full indexation is only available to people who have never started a pension.

Removing the work test
It’s also been announced that from 1 July the work test is being removed and those aged from 67 to 74, will no longer need to meet this test before they can put money into super. Previously they had to prove that they were working 40 hours over 30 days before they could make salary sacrifice contributions to super.

Downsizing contributions to be more accessible
From the first of July 2021 individuals aged 60 and over will be allowed to make a one-off post-tax downsizer contribution of $300,000 from the sale of their home, without impacting their non-concessional cap. This can only be done once in a lifetime. This reduces the age from 65 which was the lower limit introduced with this measure from 1 July 2018.

Pension reduction extended
During the pandemic the Government announced that pension percentages were being halved. This meant that someone who may have been required to withdraw 4% of their super, could withdraw 2% instead. This was designed to help people to preserve their capital during times of market volatility. The Government has just announced that they’re going to extend that provision out for the next financial year.

Offshore management of Self Managed Super Funds
Self Managed Super Fund rules specify that funds have to be managed in Australia. Covid made that difficult for people who were working overseas and unable to come home. That’s why the Government allowed trustees to keep contributing to their funds while they were out of the country. From July 1 this relaxation is being extended, allowing trustees to keep contributing from outside Australia for up to five years. Relaxed residency requirements for SMSF and small APRA-regulated funds (SAF) will allow their members to continue to contribute to their superannuation fund whilst temporarily overseas. This gives them the equivalent rights enjoyed by members of large APRA-regulated funds.
From 1 July 2022, the central control and management test safe harbour will be extended from two to five years, and the active member test will no longer apply.

Legacy retirement product conversions
For a two-year period expected to start on 1 July 2022, individuals holding certain legacy retirement products will be able to exit these products and transfer their balance to more contemporary retirement products. Examples of legacy products include market-linked, life-expectancy and lifetime products including those in SMSF.
This measure does not apply to flexi-pension products or a lifetime product in a large APRA regulated or public sector defined benefit schemes.

Less tax. More employer contributions.
The Low and Middle Income Tax offset was scheduled to come to an end on 30 June 2021. This has now been extended to the next financial year and will continue to provide tax relief of up to $1080 in a financial year for low to middle income earners. At the same time, the superannuation guarantee increases to 10% from 1 July 2021. employees need to understand their salary contract to identify if their employer will be paying the increase in superannuation or if it will reduce their take home pay.

Would you like to know more?
As you can see, super has lots of rules and thresholds, and these are shifting over time. With these changes comes increasing complexity, making it easy to make a mistake. We therefore recommend that anyone looking to take advantage of the changes by adjusting their superannuation strategy should seek professional financial guidance.  If you’d like to know these changes and how they might impact you, your Elston adviser is here to help.

If you would like more information please call 1300 ELSTON or contact us to speak to one of our advisers.