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By Jenneke Mills, Manager - Adviser Technical Support
Significant advice opportunities have been created, particularly for older clients, as a result of the passing of 2021 Federal Budget super proposals. We summarise some of the changes to help you navigate the new rules, as well as highlight key advice opportunities to maximise client outcomes in 2022 and beyond.
Legislation has finally been passed and received Royal Assent to give effect to several of the key super changes proposed in the 2021 Federal Budget.
The changes provide significant strategic advice opportunities from 1 July 2022, particularly in relation to older clients and super contribution strategies. The changes include1:
The amendments may provide a range of new advice opportunities for clients who thought the super door was permanently closed to them. The strategic opportunities surpass simply boosting an individual’s super balance.
In this article, we explain advice opportunities resulting from three of the key measures, that may benefit your clients.
The work test will no longer need to be met by individuals aged between 67 and 753 when making:
The work test will still need to be met (or work test exemption applied) to claim a tax deduction for personal contributions.
Important note: To give effect to this change, the work test will be removed as a part of the contribution acceptance rules which currently sit within Superannuation Industry Supervision Regulations 1994. At the time of publication, the regulations had not yet been amended, however it is expected that this will occur over the coming weeks. Once the work test is removed from the regulations a super trustee will no longer have any obligation to confirm whether or not an individual has met the work test before accepting a contribution.
The legislation that has been passed introduces a work test as part of the eligibility requirements under tax law for personal deductible contributions. From 1 July, the work test will need to be met to be eligible to claim a tax deduction for a personal contribution, where the contribution was made on or after the person’s 67th birthday.
Individuals aged less than 75 at the prior 1 July will be eligible to access the NCC bring forward arrangement, subject to meeting all relevant eligibility criteria.
Using recontribution to maximise super investments and simplify death benefit outcomes
Tony (72) passes away in August 2022 leaving a super death benefit of $400,000 to his wife Carmela (70). Carmela has an account-based pension with a current balance of $300,000. Carmela also owns two investment properties which are generating around $65,000 pa in net income.
Carmela has no upcoming expenses for which a lump sum is required, and maximising super investments is appropriate from a tax perspective. She likes simplicity and would prefer to minimise the number of financial accounts she has. As a result of the changes to the work test and the bring-forward rule, Carmela could:
Other considerations should include:
Downsizer contributions will be able to be made by individuals aged 60 or over. In 2021/22 and prior years, downsizer contributions can only be made by a person 65 or older at the time of the contribution.
Key advice opportunities
Reducing the eligibility age for downsizer contributions may provide a number of opportunities to clients, including:
Where a client has more than one dwelling in respect of which they are likely to satisfy the downsizer rules upon sale, there is also an opportunity to provide advice that best utilises the client’s current and future contribution caps and maximises total contribution opportunities, while considering any CGT implications of a sale.
The new financial year will bring new and exciting super opportunities for many of your clients. In particular many older clients, who were previously unable to contribute to super, will now have the opportunity to build more wealth in super.
1 The Bill also included changes to the way in which exempt current pension income is calculated when an SMSF has had both accumulation and retirement phase interest for part, but not all of the year. This change applies for the 2021-22 financial year onwards.
2 Contributions must be received within 28 days after the month in which the member turns 75. Regulations will need to also be amended for this change to formally become law. See page 2 for more information.
3 Contributions will need to be received no later than 28 days after the month the person turns 75.
4 A personal deductible contribution (PDC) under the catch-up rules may provide a favourable tax outcome, subject to cap limits, total super balance limits, and work-test requirements.
5 Based on contribution caps in 2022/23, and assuming the person is eligible for a 3 year bring-forward.
If you have any questions, or would like more information, please contact the IOOF TechConnect team on 1300 650 414.
The information in this section of the website is intended for financial advisers only and is not to be distributed to clients. It has been prepared on behalf of Australian Executor Trustees Limited ABN 84 007 869 794 AFSL 240023, IOOF Investment Management Limited ABN 53 006 695 021 AFSL 230524, IOOF Investment Services Ltd ABN 80 007 350 405, AFSL 230703 and IOOF Ltd ABN 21 087 649 625 AFSL 230522 based on information that is believed to be accurate and reliable at the time of publication.