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Superannuation opportunities for 2021-2022


The year 2021-22 begins with new and promising super-related opportunities arising primarily from the increase in concessional, non-concessional and general transfer balance caps. Additionally, the ability for 65 and 66 year old individuals to use the bring-forward provision was a matter of much discussion. This long-awaited measure is now legislated. This article outlines the advice opportunities arising from these changes and other recently passed superannuation measures. Please consider the licensing requirements where advice provided is ‘financial product advice’ and/or tax advice.

Concessional contribution cap opportunities

There are number of changes to concessional contributions (CC) this year, including an increase in super guarantee (SG) rate, indexation of the CC cap and the removal of excess CC charge. Some of these changes can enable many opportunities for individuals to effectively make use of their CC cap and tax-effectively build their retirement savings.

Increase in the CC cap and SG rate

The CC cap indexes in increments of $2,500. For the first time since 1 July 2017, the cap has increased from the previous $25,000 to $27,500 this year. The SG rate has also increased from 9.5% to 10% from 1 July 2021.

Although the indexation of the CC cap allows an additional cap space of $2,500, for employees, the increase of the SG rate (counted towards the CC cap) takes up part of that freed-up cap space. For instance, an individual earning a salary of $100,000 will have an additional $500 of SG contributed to super using their CC cap. Individuals should check with their employers if the increase in SG is being paid in addition to their base salary or if their base salary will be adjusted in order to offset the increase in the SG rate.

Note that the excess CC charge which was incurred when individuals exceeded their CC cap has been abolished from 1 July 2021.

Using the catch-up concessional contribution provision

Individuals can access their unused CC caps on a rolling basis for five years. Given the catch-up concessional regime began on 1 July 2018, eligible individuals can utilise their unused cap from 2018-19, 2019-20 and 2020-21 and can contribute in 2021-22, subject to the total super balance (TSB) being under $500,000 on 30 June 2021. This can be particularly helpful when an individual makes a large capital gain which can be contributed to super on which they can claim a tax deduction if eligible.

Making personal deductible contributions

Individuals who have remaining CC cap space after their SG and salary sacrifice contributions, or self-employed individuals, can make personal deductible contributions to maximise their CC cap. Eligible individuals must ensure they lodge their notice of intent to claim a tax deduction and receive an acknowledgment before they file their tax return for 2020-21 for any CCs made in 2020-21. The notice (for contributions made in 2020-21) is required to be submitted by the day they lodge their income tax return for 2020-21 or by 30 June 2022, whichever is earlier. Individuals intending to split their super contributions and wanting to claim a tax deduction on their contribution need to submit their notice of intent first before they lodge the application for contribution splitting. Individuals need to ensure that the notice is lodged for the contribution before they either withdraw/rollover funds or commence an income stream.

Contribution splitting

Individuals can split their concessional contributions with their spouse, provided the fund allows to do so. This may be beneficial for those who are looking to equalise balances between couples or where the receiving spouse may have access to the funds earlier. The maximum amount they can split for 2021-22 is limited to the lesser of:

  • 85% of the CCs made for this financial year; or
  • the individual’s CC cap for 2021-22.

Note that it is possible to split amounts based on higher available CC cap (that includes unused catch-up CCs from 1 July 2018 onwards) rather than the standard CC cap of $27,500. The contributions that are split count towards the contributor’s CC cap and not towards the receiving spouse’s CC cap. In order to be eligible, the receiving spouse should not be retired if above preservation age, and should be under the age of 65. Individuals can apply to split the CCs contributed in 2021-22 in the financial year 2022-23. This applies unless the entire benefit is rolled over or withdrawn, in which case the application must be lodged in 2021-22 at the time the funds are rolled over or withdrawn.

Non-concessional contributions cap opportunities

The legislation that was introduced in May 2020 proposing an increase in the age from 65 to 67 under which individuals can use the bring-forward provision (effective 1 July 2020) has now been legislated. A couple of other NCC cap related changes have also taken place, including the increase of the NCC cap and the general transfer balance cap, in addition to the opportunity to recontribute monies withdrawn under COVID-19 related compassionate ground measures. 

NCC cap increase coupled with increase in the age to utilise bring-forward provision

The non-concessional contribution cap (NCC) has increased to $110,000 in addition to the general transfer balance cap increase to $1.7 million from 1 July 2021. Furthermore, those who were 66 and under on 1 July 2021 are eligible to use the bring-forward provision and can contribute up to a maximum of $330,000 using the NCC cap in 2021-22, subject to their TSB as at 30 June 2021.

If the bring-forward provision is triggered while they are 66, they can finish their remaining unused cap in the next two years even though they turn 67 and 68, subject to work test standards and the TSB criteria in those specific years. Note that the total available bring-forward cap is based on the standard NCC cap that applied in the year the bring-forward was triggered. Therefore, if the individual has already triggered the bring-forward in 2019-20 or 2020-21, then the maximum they can contribute in the two years following the year in which they triggered the bring-forward, cannot exceed $300,000. Table 1 below summarises their personal NCC cap for 2021-22 based on their TSB as at 30 June 2021.

Table 1

TSB as at 30 June 2021Personal NCC cap
$1.7 million or more$0
$1.59 million to <$1.7 million$110,000
$1.48 million to <$1.59 million$220,000
Less than $1.48 million$330,000

In the May 2021 Federal Budget, it was proposed that the ability to use the bring-forward provision will be expanded to those aged 741 and under without having to meet the work test from 1 July 2022. This has not yet been legislated. Advisers might want to consider the impact of this proposed change before recommending NCC contributions, especially for those aged 65 and 66.

For example, an adviser may currently recommend $330,000 to a 66 year old who has around $440,000 available to contribute. However, if the above legislation passes, then the adviser may consider recommending an NCC of $110,000 for 2021-22 and the remaining $330,000 in 2022-23.

Making Government co-contribution and spouse contributions

From July 2017, individuals who had a TSB of $1.6 million or more on prior 30 June, lost their eligibility to receive a tax offset for making spouse contributions or receive Government co-contributions. However, from 1 July 2021, an increase in the general transfer balance cap to $1.7 million will also extend these opportunities to those with TSB between $1.6 million and $1.7 million.

For 2021-22, individuals will be eligible for a maximum entitlement of $500 if they earn $41,112 or less and make an NCC of $1000 subject to other eligibility criteria2. The entitlement reduces if the individual earns between $41,112 and $56,112 and/or contribute less than $1000. Those earning $56,112 or more do not receive any entitlement.

If an individual’s spouse earns $37,000 or less, making a spouse contribution of at least $3,000 will enable the individual to receive a maximum tax offset of $540 subject to the other eligibility criteria. The entitlement reduces if the individual’s spouse earns between $37,000 and $40,000 and/or contributes less than $3,000. If the receiving spouse’s income is $40,000 or more, the individual does not receive any entitlement. The contribution counts towards the receiving spouse’s NCC cap and the receiving spouse’s TSB has to be less than $1.7 million on 30 June 2021 in order to be eligible.

Note that any amount contributed as spouse contributions will not attract any Government co-contribution amount (for the same amount contributed) for the spouse even though the contribution for both these measures count towards the NCC cap. A separate NCC contribution by the spouse is required in order to receive the Government co-contribution if eligible.

Recontributing super accessed under COVID-19 measures

Another amendment that was included in recently passed legislation3 was the ability to re-contribute super monies that were accessed under compassionate grounds due to COVID-19 in 2019/20 and 2020/21 without being counted towards their NCC cap. Eligible individuals can make this contribution starting 1 July 2021 until 30 June 2030. A notice in the approved form has to be provided on or before contribution, in order to be excluded from NCC.

Future contribution considerations and opportunities

The recent increase in the age to 66, both for triggering the bring-forward provision and contributing without meeting the work test, will enable many older Australians to maximise their super balances.

Additionally, the May 2021 Federal Budget committed to a further increase in the age to 744 under which individuals will not only be able to use the bring-forward provisions, but also contribute without meeting the work test from 1 July 2022. Although this will open up plenty of contribution opportunities, advisers will need to ensure they plan the contributions for future years in the best possible way. This planning will particularly be critical for those who have large sums of money (including individuals receiving a late inheritance) and were unable to contribute before, due to age restrictions and/or  inadequate cap space.

Retirees also have the opportunity to cash out their existing super and re-contribute (subject to contribution caps) them back to effectively manage the tax payable from any super death benefits left to non-tax dependants. Additionally, if the new legislation goes through, they may continue using the re-contribution strategy until they turn age 75.

Couples where one spouse has exhausted their transfer balance cap and has excess amounts in accumulation may be able to withdraw and recontribute to the other spouse who has transfer balance cap space available to commence a retirement phase income stream. This can increase the tax efficiency of the couple’s retirement assets as more of their savings are in the tax-free pension phase environment. The older spouse who has reached Age Pension age may be able to withdraw monies from their super and recontribute them to the younger spouse’s (under Age Pension age) super, subject to contribution cap space and TSB criteria to help maximise Age Pension entitlements.

A common question about contributions that we get relates to the difference in the exact cut-off age for utilising the bring-forward provision and contributing to super without meeting the work test/being eligible for work test exemption. In order to use the bring-forward provision, the individual must be 66 or under on 1 July 2021 besides meeting the other eligibility criteria.

If the individual is 66 or under on 1 July 2021, then they can trigger the bring-forward at any given point of time in the year, even if they turn 67 during the year or the contribution is made after the 67th birthday in the same financial year. However, if the contribution is made after their 67th birthday, they need to ensure that the work test is met, or they are eligible for the work test exemption for 2021-22. Even if the work test was met in the earlier part of the year before the individual’s 67th birthday, it will suffice as long as it is met in the same financial year in which the contribution is made. Therefore, the timing of the contribution for those who are 66 or closer is crucial.

Other super opportunities for 2021 and beyond

Other new super related measures include the reduction in the downsizer eligibility age to 60 (to be effective from 1 July 2022), extending the reduction of minimum pension drawdown rates for another year and the ability to increase the SMSF members from four to six.

Downsizer contributions

Eligible individuals aged 65 and over have an opportunity to make a downsizer contribution when they sell their home, provided they meet other eligibility criteria. The contribution must be made within 90 days from the date of settlement and make an election in an approved form before or at the time of making a contribution. Note that purchasing a second home or downsizing is not a requirement to be eligible for a downsizer contribution. Refer to our recent article ‘Downsizer contributions – revisited’ to understand further eligibility to make a downsizer contribution.

The Federal Budget 2021-22 announced that the eligibility age for the downsizer contribution will be reduced to 60 from 1 July 2022. This has not yet been legislated.

Minimum pension drawdowns

The temporary reduction of the minimum drawdown rates have now been extended for a further year until 30 June 2022. In response to COVID-19, the minimum drawdown pension rates were initially halved for 2019-20 and 2020-21. While recommending strategies relating to transfer balance cap and planning cashflow requirements, care should be taken to reflect the proposed rate of minimums for 2021-22. It might also be worthwhile to reach out to clients already taking reduced minimums, if they wish to continue doing so. See Table 2 which outlines the minimum pension drawdown rates for 2021-22.

Table 2

Age on 1 JulyMinimum rates for 2021-22
Under 652%
65-742.5%
75-793%
80-843.5%
85-894.5%
90-945.5%
95 or more7%

Increase in SMSF members from four to six

Another measure that was recently passed increased the number of members an SMSF can have, from four to six effective 1 July 2021. This means larger families might look forward to consolidating their SMSFs to save fees and increase management efficiency. Individuals should receive professional SMSF advice to understand the impact before heading down this path.

1. Contributions must be received within 28 days after the end of the month in which the individual turns 75.
2. Refer to the ATO website to see the list of eligibility criteria for receiving Government co-contribution. 
3. That extended the age to use the bring-forward provision. 
4. Contributions must be received within 28 days after the end of the month in which the individual turns 75. 

 

1. Contributions must be received within 28 days after the end of the month in which the individual turns 75.
2. Refer to the ATO website to see the list of eligibility criteria for receiving Government co-contribution. 
3. That extended the age to use the bring-forward provision. 
4. Contributions must be received within 28 days after the end of the month in which the individual turns 75. 

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