The start of the 2023 financial year heralds some significant changes to the rules governing contributions to superannuation.

While we have addressed these changes in previous blogs, I thought it timely to provide a brief summary of the changes that now apply.

Superannuation Guarantee Contributions

Superannuation guarantee contributions, or SG as they are often referred to as, are the compulsory superannuation contributions an employer must make for their employees.

From 1 July 2022, two important measures apply:

1. The SG rate increases from 10% of salary, to 10.5%. While only a small increase, this can make a significant difference to superannuation savings over a person’s working life. The SG rate will increase by 0.5% each year until it reaches 12% on 1 July 2025.
2. The previous minimum income threshold of $450 per month has been abolished. Prior to 1 July 2022, an employer was not required to make SG contributions for any month where an employee’s salary was less than $450.

Downsizer Contributions

When a person sells a home they have owned for more than 10 years, and the sale qualifies for a part or full exemption from capital gains tax, they can contribute up to $300,000 of the sale proceeds to superannuation.

The minimum age limit for making downsizer contributions has been reduced to 60 (from 65).

Contributions need to be made within 90 days of the change of ownership of the home occurring (generally the settlement date) with the ability to make a downsizer contribution being based on age at the time of the contribution, not the age at exchange of contracts or settlement.

Work test abolished – for most contributions

Previously, contributions to superannuation for a person aged from 67 and 74^[1] was conditional upon the person having met a “work test”. This applied to all contributions except SG and downsizer contributions.

The work test requires a person to have been gainfully employed or self-employed for a period of at least 40 hours, worked within a period of 30 consecutive days, in the year in which they intend to contribute.

From 1 July 2022, the work test has been abolished for most contributions.

This means a person’s super fund can generally receive employer contributions, such as those made under a salary sacrifice arrangement, and personal (non-concessional) contributions, up until 75 without the need to meet the work test^[2].

However, there is a catch.

A person aged 67 to 74 wishing to claim a tax deduction for their personal contributions will still be required to meet the work test.

Rather than simply signing a declaration for their super fund confirming the work test has been met, this will be administered by the Australian Taxation Office (ATO) from 1 July 2022. It is anticipated the ATO may data match information from other sources including income declared on a person’s income tax return to verify the work test has been met.

SG contributions and downsizer contributions do not have an upper age limit, nor are they subject to the work test having been met.

The change to rules around superannuation contributions are a refreshing improvement and provide opportunities, particularly for older Australians, to maximise their savings in the favourably taxed superannuation environment.

However, there is still a degree of complexity around applying the new rules. If wishing to take advantages of the new opportunities, consider seeking advice from a licensed financial planner before proceeding.  

[1] Contributions can be made up until the 28^th day of the month following that in which a person turns 75.
[2] Non-concessional contributions can only be made if the individual has a total superannuation balance of less than $1,700,000.