Not just for high income earners
As 30 June is fast approaching you are likely to have seen many tax time promotions. Taking advantage of one of the opportunities with superannuation may bring some tax benefits but it also boosts your retirement nest-egg. And the opportunities are not just for high income earners.
Up to a 50% return on your investment – government guaranteed!
If your income is below the thresholds shown below and you meet all the other criteria you may be eligible for a Government co-contribution.
The co-contribution is paid on eligible non-concessional contributions up to the lesser of
- eligible contributions x 50%, and
Follow this link to see the full details including a calculator: ATO website
The fine print: The Government will pay 50% of your eligible non-concessional (after tax) contribution up to a maximum of $500 where:
- Assessable income from eligible employment and/or from carrying on a business is more than 10% of your total assessable income plus reportable fringe benefits plus salary sacrificed contributions;
- Your income tax return will be lodged for 2021
- You are less than 71 years of age at 30 June 2021
- You are not a temporary resident visa holder (unless you are a New Zealand citizen or holder of a prescribed visa)
- Your Total Super Balance is less than $1.6m at 30 June 2020, and
- You have not exceeded non-concessional cap
The following table shows the low income threshold where you are entitled to the maximum $500 co-contribution and the high income threshold where you cease to be entitled to any co-contribution. Between these amounts the maximum co-contribution is reduced as income increases. Check out the ATO Calculator to see what your may be entitled to.
|Year||General TBC||Maximum Entitlement||Low Income Threshold||High Income Threshold|
An 18% tax-offset gift for your spouse
The spouse rebate is a great way to get an immediate tax-free cash back return of up to 18% on up to $3,000 contributed to superannuation where one spouse has low income. So a couple’s combined superannuation balance can be boosted and the ATO rebates 18% of this.
The fine print: A maximum tax offset of $540 is available to the contributing spouse when they contribute $3,000 to their spouse’s super, where the total of the receiving spouse’s assessable income (including total reportable fringe benefits and reportable super contributions) is $37,000 or less.
This non-refundable tax offset gradually decreases and cuts out at income of $40,000 and can assist in reducing the tax liability of the contributing spouse.
Low Income Super Tax Offset
A tax refund on concessional contributions.
The low income super tax offset is available to both employees and the self-employed who have taxable income below $37,000 in 2021 and who have made a concessional contribution to superannuation (either paid by their employer in the form of compulsory superannuation or as a personal tax deductible contribution).
The amount payable is the lesser of:
- 15% of eligible contributions, and
A refund of the tax paid on concessional superannuation contributions, up to a cap of $500 is paid directly into the person’s super account.
Additional concessional contributions
Adding to superannuation is, for many people, the most affordable and easiest way to provide for their retirement. Making additional concessional contributions provides tax relief (especially where taxable income exceeds $45,000) whilst providing for retirement.
15% tax is paid by the superannuation fund on concessional contributions. However, if you make a superannuation contribution via salary sacrifice or a personal deductible contribution, you reduce the amount of tax and Medicare paid by your marginal tax rate.
Here are the 2021 tax rates. An average income earner will save 34.5% which, after allowing for the 15% paid by the superannuation fund, is a net immediate return of 19.5% on the additional superannuation amount contributed.
Unused concessional contributions
If you have received a bonus, capital gain, gift or inheritance or otherwise find yourself with some additional disposable income, you may wish to consider making a personal concessional superannuation contribution. Taking advantage of the unused contribution caps, mean that you may be able to make a significant contribution.
Unused concessional contribution caps from 1 July 2018 are now carried forward for up to 5 years. Individuals with less than $500,000 in superannuation as at 30 June 2020 and with sufficient cash and taxable income are able to use this option in the 2021 year.
The amount of your unused concessional cap can be accessed via your myGov account or we can assist you with this if we are your tax agent. Add the unused cap to the $25,000 annual cap to calculate what your personal concessional contribution cap is for the 2021 year.
Take advantage of indexation in 2022
The contribution caps for 2021 have not changed but indexation will take effect from 1 July 2021 increasing the caps as shown in the table below. The contribution caps apply to the total of compulsory employer, salary sacrificed and personal tax deductible contributions.
|Concessional (pre-tax employer or personal deductible)||$25,000||$27,500|
|Non-concessional (after tax)||$100,000||$110,000|
|Bring forward non-concessional||$300,000||$330,000|
Increase in SGC to 10%
When considering your salary sacrifice arrangements for next year remember to factor in the increase in the employer super guarantee contribution which increases from 9.5% this year to 10% in 2022.
Work Test applies to voluntary contributions from people aged 67 to 75
The work test for 2021 needs to be met by everyone between the ages of 67 and 75 and applies to voluntary super contributions only (member deductible, salary sacrificed and non-concessional).
The work test requires that you have worked 40 hours in 30 consecutive days prior to making the voluntary contribution.
Bring Forward Non-Concessional Contributions
A potential super boost for those transitioning to retirement.
The non-concessional bring forward rule enables a person to make non-concessional contributions in excess of the annual cap by utilising the caps from the next 2 years.
While the Government has proposed to change the age at which access to the non-concessional ‘bring forward’ rules stop, this has not yet been passed into legislation.
If you want to take advantage of the ‘bring forward’ non-concessional cap in 2021 you must be under 65 at 30 June 2020. The following table shows the amount of bring forward applicable based on your prior year total super balance.
|Total Super Balance at 30 June 2020||Bring Forward Contributions|
|$1.6m or more||No bring forward|
|$1.5m to less than $1.6m||$100,000|
|$1.4 to less than $1.5m||$200,000|
|Less than $1.4m||$300,000|
In the 2022 year these rules change considerably because of indexation of both the non-concessional contribution cap and also the General Transfer Balance Cap which will be $1.7m from 1 July 2021.
|Total Super Balance at 30 June 2021||Bring Forward Rules|
|$1.7m or more||No bring forward|
|$1.59m to less than $1.7m||$110,000|
|$1.48 to less than $1.59m||$220,000|
|Less than $1.48m||$330,000|
Changes to Minimum Pension Drawdowns
The ability to keep more in a super tax-sheltered environment
The Government has recently announced that the 50% reduced minimum pension withdrawals introduced in response to the COVID-19 pandemic have been extended and the following will apply for the 2022 financial year:
|Age||50% Reduced Minimum Pension drawdown for 2020, 2021 and 2022|
|65 – 74||2.5%|
|95 or more||7%|
Note that the maximum pension withdrawal for a Transition to Retirement Income Stream remains at 10%.
Indexation of the Transfer Balance Cap
The transfer balance cap (TBC) is the maximum amount of superannuation that can be transferred into the retirement phase and has been $1.6 million since commencement of the transfer balance rules on 1 July 2017. As a result of indexation, from 1 July 2021 the general TBC increases to $1.7m.
If you start a retirement phase income stream for the first time on or after 1 July 2021, you will have a personal transfer balance cap of $1.7 million.
If you have already commenced a retirement phase income stream your personal transfer balance cap will be either:
- $1.6 million if, at any time between 1 July 2017 and 30 June 2021, the balance of your transfer balance account was $1.6 million or more, or
- Between $1.6 and $1.7 million in all other cases, based on the highest ever balance of your transfer balance account and indexation of the unused proportion.
It is important to understand which cap will apply to you if you intend to commence further pensions so that you avoid paying excess transfer balance tax.
The Taxation office has indicated that your personal transfer balance cap will be available via your myGov account after 1 July 2021.
Speak to your adviser
If you would like to take advantage or have any questions about the above please don’t hesitate to contact us.