We have now all had some time to go over the Federal Budget in detail. Hopefully you have considered our EOFY checklist so with that all in order why don’t we consider how the Federal Budget and the indexation of some of the superannuation thresholds will work together as we move into 2022.
The Federal Budget had a fair amount in it for individuals, business owners and superannuation. From 1 July 2022 those relevant to your super include the following
- Minimum age to make the $300,000 downsizer contribution reduced from 65 to 60
- No more work test for those aged 67 to 74 (the work test will still apply for those aged 67 to 74 until 1 July 2022) Read more about the work test here
- The Government has increased the maximum amount of contributions eligible for release under the first home super saver scheme (FHSS Scheme) from $30,000 to $50,000 (learn more about this scheme here.)
In conjunction with the Federal Budget we also need to navigate the indexation changes due to come into effect in 2022. What are these and how may they impact you?
- Increase to the concessional contribution cap from $25,000 to $27,500
- Increase to the non-concessional contribution cap from $100,000 to $110,000
- Indexation of the Transfer Balance Cap from $1.6m to $1.7m
What do all these mean when considered together? Let’s consider a quick case study.
Chelsea and Jas are 62 and 68 years old respectively and both retired. They still receive dividends from their company. They are looking to maximise their contributions to super over the coming few years as they have spent their working lives focusing on running their business and only have $300,000 in super combined. They have $800,000 in shares and cash and are also looking to sell their home and rent closer to their grandchildren. Potentially, how much could they get into super?
- Chelsea can make a $100,000 non-concessional contribution to super prior to 30 June 2021 and up to $25,000 as a concessional contribution (after considering tax savings) She may also like to consider the catch-up contribution rule – find out more here
- Chelsea can contribute $110,000 in the 2022 financial year under the bring forward rule as well as $27,500 as a concessional contribution
- Chelsea & Jas can contribute $300,000 each when they downsize their home
- Jas will need to wait until after 1 July 2022 to commence making contributions again as she is over 67. In the 2023 year Jas & Chelsea can contribute $330,000 each under the bring forward rule (subject to Royal Assent) and up to $27,500 as a concessional contribution. Again, they may also like to consider the catch up rule.
So potentially over the next 3 financial years Chelsea and Jas could do the following:
*plus potential catchup contributions
And just like that Chelsea & Jas have boosted their super from $300k to over $1.5m. And hopefully saved some tax along the way. And if they start a pension after 1 July 2021 they will both be able to move up to $1.7m into pension phase.
Before making any additional contributions to super or commencing a pension be sure to contact your advisor or get in touch with us here for more information.
This information has been prepared without taking into account your objectives, financial situation or needs. Because of this, you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs.