There have been a number of changes announced throughout the year in relation to superannuation, therefore care must be taken and professional advice sought to ensure you don’t pay extra tax.
Super Guarantee (SG) contributions increase from 1 July 2021
Effective 1 July 2021, employers will be obligated to pay their employees the increased SG contribution rate of 10%.
Points to be considered by employers:
- Notify your employees. Salary sacrifice arrangements or after-tax contribution arrangements may need to be reviewed and agreed upon.
- Remuneration packages to be reviewed as employees may potentially take home less pay.
- Review payroll software, ensure it’s up to date and takes into account the new SG rate from 1 July 2021 so wages and superannuation are calculated correctly.
- Plan ahead – external providers may require additional time to update rates and figures.
Indexation of contribution caps effective 1 July 2021
From 1 July 2021 contribution caps are increasing by 10%. This will impact all individuals, their employers and also anyone who is looking to make an after-tax contribution.
Concessional Contributions
The current concessional contribution cap that applies for all individuals is $25,000.
From 1 July 2021, this will increase to $27,500.
Individuals, employers and business owners will need to factor in the increase for those that currently have salary sacrifice arrangements in place. Leaving planning to the last minute could result in an under payment of contributions, and similarly, not understanding the rules could result in an individual having to pay too much tax.
Like all planning that takes place, please ensure you have left enough time to make transfers and to allow for your clearing house to send the payment to the relevant super fund. This can sometimes take 7-10 business days to occur. Contributions are treated as being made on the day it is received by the super fund, not the day the withdrawal occurs from a relevant bank account.
Non-Concessional Contributions
For individuals looking to make a non-concessional contribution, the caps are increasing to $110,000 from 1 July 2021. The current non-concessional cap is $100,000.
This increase is in line with average weekly ordinary times earnings (AWOTE).
Eligibility to make non-concessional contributions is reliant upon:
- Your age
- Satisfying the work test or work test exemption
- Your total superannuation balance (TSB)
- If you have triggered the bring-forward arrangement
If you are under 67 years of age your fund can accept all types of contributions except downsizer contributions.
Indexation of Total Super Balance (TSB) cap for non-concessional contributions on 1 July 2021
An individual’s total super balance (TSB) impacts:
- Eligibility to make a non-concessional contribution.
- The non-concessional contributions cap amount that you can bring-forward.
- Whether you have a two or three year bring forward.
TSB is determined at 30 June of the previous financial year before a non-concessional contribution is made.
From 1 July 2021 the TSB will be increasing from $1.6 million to $1.7 million and will impact the bring-forward contribution caps as follows:
Total Super Balance on 30 June of previous year
|
Non-concessional contributions cap for the first year
|
Bring forward period
|
Less than $1.48 million
|
$330,000 |
3 years |
$1.48 million to less than $1.59 million
|
$220,000 |
2 years |
$1.59 million to less than $1.7 million
|
$110,000 |
No bring-forward period, general non-concessional contribution cap applies |
$1.7 million or more
|
Nil |
Not applicable |
Indexation of the Transfer Balance Cap (TBC)
From 1 July 2021, the general transfer balance cap will be indexed to $1.7 million. The general transfer balance cap currently stands at $1.6 million.
Depending on an individual’s circumstance the indexation of the general transfer balance cap will be dependent on:
- Whether you had a transfer balance account before 30 June 2021 (i.e. you had a retirement phase income stream in place).
- If you had a transfer balance account prior to indexation occurring and the highest ever balance of your transfer balance account between 1 July 2017 and 30 June 2021 was never $1.6 million or more.
If an individual has never used the full amount of your transfer balance cap, the personal transfer balance cap will be proportionally indexed based on the highest ever balance of the transfer balance account.
Extension of temporary reduction in minimum drawdown rates
On 29 May 2021, the Government announced that it would extend the temporary reduction in superannuation minimum drawdown rates for a further year to 30 June 2022.
The Government reduced minimum pension requirements for account-based pensions and annuities, allocated pensions and annuities and market linked pensions and annuities by 50% for the 2020 and 2021 financial years. This was to assist retirees with the significant losses in financial markets as a result of the COVID-19 crisis, which the Government noted for many retirees, is still having a negative effect on the account balance of their superannuation pension.
The pension factors from 1 July 2022 will be as follows:
Age
|
Minimum % withdrawal From 1 July 2022
|
Reduced rates by 50% for the 2019-20, 2020-21 and 2021-22 income years %
|
| Under 65 |
4% |
2% |
| 65-74 |
5% |
2.5% |
| 75-79 |
6% |
3% |
| 80-84 |
7% |
3.5% |
| 85-89 |
9% |
4.5% |
| 90-94 |
11% |
5.5% |
| 95 or more |
14% |
7% |
Carry forward unused concessional contributions
The carry forward arrangements allow individuals to access their unused concessional cap on a rolling basis for five years. They were introduced to make it easier for people with interrupted or non-standard work patterns to save for their retirement.
The first financial year individuals could access this measure was the 2020 financial year. Unused amounts from 1 July 2018 onwards can be carried forward.
Oldest available unused caps must be used first, for example unused amounts from the first year being 2018-19 would be used first.
To access this measure, an individual’s Total Super balance (TSB) at the end of 30 June of the previous financial year must be less than $500,000.
Action Items Pre 30 June 2021
- Ensure you have reviewed salary sacrifice arrangements with your employer in preparation of the new concessional cap of $27,500.
- If you are looking to make personal contributions to super, ensure they are made well in advance of 30 June to allow enough time to be processed by your super fund or transfers between bank accounts (SMSF).
- Review pension payments and ensure you have met the minimum requirement for 2021 financial year, noting it is at the 50% reduced amount.
- Pension payments must be made in cash. In-specie payments will be treated as a lump sum.
- If you have a super balance of less than $500,000, speak to us to see if you are eligible to maximise the carry forward unused concessional contribution strategy.
- If you are going to have unusually high taxable income this financial year, please speak with us to review your tax position and provide solutions where possible.
Please note
The above is general advice or an information service only and does not take into account your objectives, financial situation or needs. Before acting on any of the information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. If you are considering acquiring or continuing to hold a particular financial product, you should obtain the Product Disclosure Statement (PDS) relating to the product and consider this before making any decision.
