Amendments to superannuation law will address accidental tax consequences created in recent federal policies. While taxpayers will see the changes to superannuation as favourable, knowing what they will mean to your super is critical. The current economy has caused uncertainty amongst Australians and flexibility in retirement planning is top of mind.
Changes to superannuation law include:
1. Super Contributions Work Age Test
Effective from 1 July 2020, people aged under 67 will be able to make voluntary personal contributions without needing to meet the work test.
In order to meet the work test, you need to have been gainfully employed or self-employed (for gain or reward) for at least 40 hours in a period of no more than 30 consecutive days in the financial year (ending 30 June), before making the contribution.
If you’re between 67 and 74, you need to meet the work test or work test exemption to make personal contributions to your super. The work test exemption applies if you met the work test criteria in the previous financial year and your total super balance was less than $300,000 on 30 June, last year.
Please note that if you are under 67 years of age, you should ignore any warnings which require you to submit a work test declaration. You are able to make your contribution without the need to do so.
2. Bring Forward Non-Concessional Contribution Cap
From 1 July 2020, those aged between 65 and 66 may be eligible to make personal contributions of up to $300,000 into their super account. The bring forward rule allows eligible members to bring forward up to an additional two years of personal (post tax) contributions without exceeding the contribution cap. For details on the current contribution caps, refer to https://www.ato.gov.au/.
3. Spouse Contributions
From 1 July 2020, the eligibility age to receive spouse contributions has been increased from age 70 to 75. Assuming you are between the ages of 67-74, you may be eligible to receive spouse contributions subject to meeting the work test or work test exemption.
For further details on concessional contributions refer to https://www.ato.gov.au/.
4. Changes to Death Benefit Rollovers (DBRs)
Since 1 July 2017, death benefits have been allowed to roll over to another super fund – provided a death benefit pension is commenced in the receiving fund.
Members who roll over a death benefit to another fund have sometimes been subject to tax in the past. Being taxed in these circumstances was an accidental consequence of the legislation. This situation might’ve occurred where the transferring fund calculates an untaxed element as part of the rollover. In this case, the receiving fund would then apply tax at 15%. The Government has made it clear that this was not the policy’s intent and has committed to rectifying the mistake.
This change aims to eliminate the unintended consequence by excluding any untaxed element from a fund’s assessable income upon receipt of a death benefit rollover.
The change will prevent the taxation of death benefits when being rolled over to a new super fund. The effect will be that death benefits lump sums and pension payments remain tax-free for dependents. These will be tax-free even if rolled over within the super system.
Please note the requirement not to tax the amounts of the untaxed element received applies only to death benefit rollovers.
5. Capped Defined Benefit Income Stream (CDBIS) Changes
Previously, a partial or full commutation of specific capped defined benefit income streams led to a nil transfer balance debit under the individual’s transfer balance cap. The streams in question related to life expectancy and market linked income. This unplanned outcome opened up the possibility for someone to mistakenly exceed their transfer balance cap; resulting in a sum requiring commutation and a potential tax liability. As the lack of planning would suggest, this was not the original intention of the legislation in question. The legislation and calculation have since been rectified to prevent this from happening again in the future.
In response to the current economy and health crisis, numerous policies and laws are in a state of flux. Managing the implications of such changes can be a challenge, but they remain important to stay aware of.
If you would like to discuss any of the above superannuation law matters, please reach out to your Morrows advisor.